Investors in search of diversified performance and income amid today’s volatile market are seeing the potential benefits of dividend index strategies of different types, says Jason Ye, director of factors and thematics indices in APAC at S&P Dow Jones Indices (S&P DJI).
Given so much market uncertainty over the past few years, investor appetite for dividend-paying stocks has been a constant in this time.
This is evident by looking at the global dividends ETF market. The assets under management of dividend-related ETFs grew from around USD 100 billion to around USD 500 billion over the past decade. Within the dividend ETF market, USD 223 billion of assets were tracking the dividend indices offered by S&P DJI as of Dec. 31, 2023.
Perhaps most notable is the fact that these flows have remained despite a dip in the performance of dividend index strategies in 2023 – which has followed a bounce back in technology stocks. Regardless, high levels of investor demand are reflected in 2023 inflows to some dividends ETFs that track S&P DJI indices in the multiple billions of US dollars.
“Despite performance, we still see very strong inflows to dividend index strategies,” said Jason Ye at S&P DJI. “Investors in the US have also been buying international dividends ETFs.”
Capitalising on the US equities story
A foundation of global investor interest in US dividends is interest in US equities.
In Asia, for example, demand has come from markets like Korea and Japan, which are interested in US equities and see dividend indices as a natural choice in addition to the S&P 500®.
Asia is also driving innovation within dividend index strategies. “This has led to us adding a covered call overlay, which we created to offer extra income from selling options,” explained Ye.
In line with investor interest, investment product issuers in the region have launched several products tracking the S&P 500 Dividend Aristocrats®.
This flagship index is designed to measure the performance of S&P 500 constituents that have followed a policy of increasing dividends every year for at least 25 consecutive years. It aims to reflect both capital growth and dividend income characteristics, as opposed to alternative index income strategies that may be pure yield or pure capital-appreciation oriented.
In 2023, new products were launched in both the US and Korea tracking the S&P Dividend MonarchsTM Index which measures companies within the S&P Composite 1500®4 constituents that have followed a policy of increasing dividends every year for at least 50 consecutive years.
Compared to the S&P 500 Dividend Aristocrats, the S&P Dividend Monarchs Index further elevates the dividend growth criteria to half a century. These types of companies have been commonly referred to as the “Dividend Kings” in the investment community.
