On Seeking Alpha, I have long extolled the virtues of the Dividend Aristocrats (BATS:NOBL), stocks that have consistently increased dividends over long time periods. This segment of the S&P 500 (NYSEARCA:SPY) has outperformed the broad market with less variability and lower drawdowns. This strategy is part of my 5 Ways to Beat the Market, and I have shown that a combination of Dividend Aristocrats and Equal Weighting has beat the S&P 500 for 15 of the last 17 years.
In my last article, I demonstrated the S&P Midcap 400 Dividend Aristocrats (NYSEARCA:REGL) have also outperformed both that mid-cap index and the broader market over long time intervals. Demonstrating that this dividend growth strategy worked across size cohorts further strengthens our belief that stocks with the characteristic of paying higher dividends across business cycles should continue to produce structural alpha.
In this article, I will illustrate whether the success of the Dividend Aristocrats expands to markets outside the United States. By demonstrating the strategy's success across markets, we can add confirming evidence to belief in the strategy.
Staying close to home, the Canadian Dividend Aristocrats measure the performance of companies included in the S&P Canada Broad Market Index that have followed the policy of increasing dividends for at least five years. While that time interval is much shorter than the twenty-five years needed for inclusion in the United States, the Canadian Dividend Aristocrats have still generated risk-adjusted outperformance versus the index from which they are drawn. This index is replicated by the iShares S&P/TSX Canadian Dividend Aristocrats ETF (CDZ.CN), which has over CAD 1B of assets.
Heading across the pond, Dividend Aristocrats have also produced outperformance in the United Kingdom. The S&P UK High Yield Dividend Aristocrats track the performance of the highest dividend yielding companies included in the S&P Europe BMI. Constituents must have maintained or increased dividends for the past ten years. I compare these companies to the FTSE 100 Total Return Index in the graph below.
In broader Europe, companies that have increased or maintained stable dividends for at least ten consecutive years have also outperformed the index from which they have drawn. The index is replicated by the SPDR S&P Euro Dividend Aristocrats UCITS ETF (SPYW.GR).
Moving our view to Japan. The index is designed to measure the performance of the highest dividend yielding companies within the TOPIX universe that have followed a policy of increasing or maintaining stable dividends for at least a decade. The relative outperformance of the dividend growth strategy has been very strong in Japan where an ongoing economic malaise has led to subpar returns.
In each of the five geographies (U.S., Canada, United Kingdom, Europe, and Japan), we have seen that a segment of companies focused on dividend growth have outperformed their respective markets. The relative outperformance in Europe appears to be lower than in the U.S., Canada, or Japan. Companies in Europe typically pay relatively higher levels of dividends, and this strategy may not provide as much differentiation versus the broad indices.
I am sensitive to the fact that the histories for the non-U.S. indices are relatively short with differing start dates. I have used the longest subset of data available for each underlying index. In non-U.S. markets, the shorter periods of established corporate dividend policies limits the dataset. As the history of these indices grows, we will revisit their relative performance to see if dividend growth has indeed continued to generate outperformance in global markets.
Disclaimer: My articles may contain statements and projections that are forward-looking in nature, and therefore inherently subject to numerous risks, uncertainties and assumptions. While my articles focus on generating long-term risk-adjusted returns, investment decisions necessarily involve the risk of loss of principal. Individual investor circumstances vary significantly, and information gleaned from my articles should be applied to your own unique investment situation, objectives, risk tolerance, and investment horizon.
Disclosure: I am/we are long NOBL, SPY.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.