While most dividend products tend to have large sector biases versus their underlying benchmark, the S&P 500 Sector-Neutral Dividend Aristocrats Index is designed specifically to match the sector weights of the S&P 500. This index is the latest addition to the S&P Dividend Aristocrats Series, and as such, it requires constituents to have increased or maintained their dividends for at least 15 consecutive years. Additionally, this index only selects companies that exhibit a high annual dividend yield relative to their peers within the same GICS® sector. Hence, it is designed to display an attractive yield versus its underlying benchmark, the S&P 500.
1. How does this index work?
The S&P 500 Sector-Neutral Dividend Aristocrats Index selects the top 20% of companies with the highest indicated annualized dividend (IAD) yield within each GICS sector that have maintained or increased their dividends for at least 15 consecutive years.
If the number of stocks passing the dividend screen is fewer than the sector target, new stocks are added in descending order of IAD yield, starting with those with the longest history of dividend growth, with a minimum dividend growth history of five years.
The index mirrors the sector weights of the S&P 500, but this rule may be relaxed if the number of eligible companies in the sector is below the target. Constituents are weighted by IAD yield within the GICS sectors, subject to a minimum weight of 0.25% and a maximum weight of 5.00%.
2. What are some of the standout features of the S&P 500 Sector-Neutral Dividend Aristocrats Index?
There are three standout features of the S&P 500 Sector-Neutral Dividend Aristocrats Index.
– The index is differentiated through its sector neutrality, as most dividend strategies tend to have large sector weight differences from their underlying benchmark.
– The index has a stringent selection metric by seeking companies that have maintained or increased dividends for at least 15 years. This eligibility requirement tends to bias the index toward selecting companies with successful business models and disciplined financial management.
– The index has historically showed a substantially higher yield relative to the S&P 500 by selecting companies with the highest IAD yield within each sector.
