- What are S&P Dow Jones Indices’ Dividend Point Indices? These indices are designed to track the total dividend payments from the constituents of an underlying index. The level of the index is based on a running total of the dividends from the underlying index’s constituents. Some indices reset to zero on a periodic basis, generally quarterly or annually. Thus, the index seeks to measure the total dividends paid in the underlying index since the previous rebalancing date, or the base date for indices that do not reset on a periodic basis. For quarterly indices, the index resets to zero after the close on the third Friday of the last month of the quarter in order to coincide with futures and options expiration. For annual indices, the index resets to zero after the close on the third Friday of December in order to coincide with futures and options expiration.
The formula for calculating the dividend point index on any date, t, for a given underlying index, x, is:
The index dividend (ID) of the underlying index is calculated on any given day as the total dividend value for all constituents of the index divided by the index divisor. The total dividend value is calculated as the sum of dividends per share multiplied by index shares outstanding for all constituents of the index which have a dividend going ex on the date in question.
Please refer to the S&P Dow Jones Indices’ Index Mathematics Methodology for more detail.
- What are “dividend points?” Index points refer to the level of an index. For example, if the S&P 500 is trading at 2,100, it is said to have a level of 2,100 points. Dividend points specifically refer to the level of index points that are directly attributable to the dividends of index constituents.
- What’s the difference between dividend points indices and other types of indices, like price return and total return indices? Price return indices represent changes in the market capitalization of index constituents. They do not account for dividends. The headline S&P 500, which is frequently referred to in financial media, is a price return index. There is a related index called the S&P 500 Total Return, which calculates what the performance would be if dividends paid by index constituents on the ex-dividend date of each index share were reinvested. Total return indices, therefore, represent changes in market capitalization plus reinvested dividends. Finally, dividend points indices track dividend payments in isolation, reflecting the periodic cumulative dividends of all index shares. They do not include any changes in market capitalization.
One can think of the different types of indices as representing different investment strategies. Some investors elect to reinvest dividends in the stocks they hold, and this strategy could be benchmarked with the S&P 500 Total Return. On the other hand, some investors hold stocks but do not reinvest dividends—electing instead to take dividends in cash as a source of income. This strategy could be benchmarked with a combination of the S&P 500 Price Return and a S&P 500 Dividend Points Index.
