Dividend Growth Investing
Rules-Based Stock Screening Beat the Market
How Did Your Active Manager Do?
Many investors turn toward active managers to beat the market. And while some active managers may actually succeed, the majority of them do not. According to S&P Global's June 2016 SPIVA® Scorecard, almost 85% of active large-cap managers underperformed the S&P 500 over the past year. Over longer periods, the results were as bad or worse.1
There is, however, an approach that has outperformed the S&P 500 consistently over time. The S&P 500 Dividend Aristocrats Index, which screens for companies with the longest records of dividend growth, has outperformed the S&P 500 by an average of 2.23% per year since January 2006.2 And it has done so with lower volatility.
What Makes Screening for Dividend Growth So Effective
So what accounts for the Dividend Aristocrats Index's outperformance? S&P Global analyzed the sources of the excess returns of the Dividend Aristocrats relative to the S&P 500 and found that the vast majority of the average outperformance—almost 90%—came from security screening, while only 10% came from allocation.3
The strict dividend growth screen that selects the Dividend Aristocrats—S&P 500 companies that have at least 25 years of consecutive dividend growth—was the key differentiator. Companies that grow their dividends consistently tend to be high quality, with long histories of profit and growth, strong fundamentals and stable earnings. The bottom line: screening for quality has led to outperformance.
For illustrative purposes only. Click here for fund performance. Performance quoted represents past performance and does not guarantee future results. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest in an index.
1 Nearly 92% of active managers lagged the S&P 500 over five years and 85% over ten years.
2 Source: S&P Dow Jones Indices LLC., based on an analysis of S&P 500 and S&P 500 Dividend Aristocrats Index returns over the 10-year period from January 2006 to December 2015.
3 Source: S&P Dow Jones Indices LLC. The allocation effect is the portion of a strategy's excess return attributable to the over or underweighting of securities in a particular group (sector, country, etc.) relative to the benchmark. The selection effect is the portion of a strategy's excess return attributable to selecting different securities within each group from the benchmark.
Has your large cap active manager let you down?