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In an article last week, Dividend Aristocrat Investing 2013, I described the types of dividend paying stocks that have outperformed the S&P 500 (SPY) since 1990 while exhibiting a lower volatility return profile. Dividend Aristocrats are the 54 S&P 500 constituents that have continually increased their dividend payout for at least twenty-five consecutive years. Collectively, the Dividend Aristocrats have beat the S&P 500 by 274bp per annum since 1990 while exhibiting only 80% of the annual standard deviation of returns.

In the comment section to this article, a reader, Maddynuke, asked about the iShares Dow Jones Select Dividend ETF (DVY) versus the SPDR S&P Dividend ETF (SDY), which I had referenced in the article as a reasonable proxy of the Dividend Aristocrats Index. I began to explain the historical return differences in a response, but thought that: a) more Seeking Alpha readers could benefit from this comparison, and b) it needed a descriptive picture.

Below is the historical return profile of the Dividend Aristocrats Index and the Dow Jones Select Dividend Index. The latter index beat the S&P 500 by nearly 3.5% per year over the twenty year time period.

(click to enlarge)

Source: Bloomberg

The Dow Jones Select Dividend Index features one-hundred stocks selected by dividend yield subject to screens on the dividend per share growth rate, dividend payout ratio, and trading volume. The constituents are weighted by indicated annual dividend. This index has outperformed the Dividend Aristocrats by roughly 71bps per annum over the period. Adjusting for the 13% higher volatility (annualized standard deviation of monthly returns) of the Dow Jones Select Dividend Index, the Dividend Aristocrats have still outperformed on a risk-adjusted basis. The larger drawdown of the Dow Jones Select Dividend Index during the financial crisis is evident on the graph above. In 2008, the Dow Jones Select Dividend Index returned -31% while the Dividend Aristocrats returned -21.8%. The latter index will prove to be a more defensive play in down markets, but it should be noted that the Dow Jones Select Dividend Index still had a smaller drawdown than the broader market.

Understanding the differences in the historical risk and return profile can help Seeking Alpha readers gauge which index is correct for them. Below is a side-by-side comparison of various fund statistics:

As well as a listing of the current top ten constituents of each index:

(click to enlarge)

I really like the Dividend Aristocrats for Seeking Alpha readers who want lower volatility, and to own companies that have a long track record of steadily returning cash to shareholders. Unfortunately, there is still a basis risk between the Dividend Aristocrat Index and the SPDR S&P Dividend ETF.

For investors with a shorter time horizon, given SDY's year-to-date outperformance relative to the highly correlated DVY, and the latter index's slightly cheaper constituent valuations, I expect the Dow Jones Select Dividend Index to marginally outperform over the remainder of 2013.

I hope this historical examination of the two underlying indices, and a snapshot of current fund metrics helps Seeking Alpha readers understand the differences between the two indices.

Appended are the factsheets for the two indices:

Dow Jones Select Dividend Index

S&P 500 Dividend Aristocrats

Attached are the factsheets for the two ETFs that most closely replicate these underlying indices.

iShares Select Dividend ETF

SPDR S&P Dividend ETF

Source: Dividend Aristocrats Vs. Select Dividend Index