- Components of the S&P 500 that have paid steadily increasing dividends for at least 25 years have outperformed the broader market over time.
- This article demonstrates that historic outperformance and lists the current Dividend Aristocrat constituents and their recent returns.
- In March, the Dividend Aristocrats solidly outperformed the S&P 500 (+7.54% vs. +4.38%).
- While dividend growth stocks tend to underperform in rising rate environments, the strategy benefitted in March from its tech underweight and Industrials/Materials overweights.
- By showing the recent performance of the Dividend Aristocrats, some active dividend growth investors may be able to suss out relative bargains.
The Dividend Aristocrats outperformed in March, posting very solid total returns and very strong breadth of positive returns across constituents. The 7.52% total return for this Dividend Growth Index (BATS:NOBL) was a 314bp outperformance versus the broader S&P 500 (SPY). The table below disaggregates that outperformance by sector, demonstrating that the strategy's tech underweight and materials/industrials overweights contributed most to this monthly outperformance.
Not only did the strategy benefit from positive sector selection in March, the breadth of constituent-level gains also helped the strategy. Of the strategy's 65 components, 60 (92%) posted positive total returns on the month. This compares favorably to the S&P 500 where only roughly 83% of constituents posted gains on the month.
In the table below, the list of the current Dividend Aristocrat constituents is sorted descending by indicated dividend yield, and lists total returns, including reinvested dividends, over trailing 1-, 3-, 6-, and 12-month periods.
Here are a couple of notable observations from this list and the broader performance trends in March:
- Steelmaker Nucor (NUE) was the big winner, driving the Materials sector higher on a supply/demand imbalance for materials and expectation of a large scale domestic infrastructure plan.
- While much of the positive attribution to Tech was attributable to being underweight the sector versus the broad market, IBM (IBM) - a new Dividend Aristocrat - also added positive security selection with its strong March 2021 performance after lagging the tech rally in 2020.
- Atmos Energy (ATO), hamstrung by the Texas power crisis, in February, snapped back in March up 16%, continuing a trend of idiosyncratic issues with the Dividend Aristocrats tending to be buying opportunities.
- Two of the rare five stocks with negative returns in March 2021 were M&A-related with People's United (PBCT) constrained on pricing given the pending M&T Bank merging and Chubb (CB) pressured by its takeover bid for Hartford (HIG).
- Looking back 12 months, inclusive of April 2020 to March 2021, only Continental Edison has produced a negative total return, down 0.03%.
In March 2021, the tech underweight inherent in the dividend growth strategy was a positive differentiator. If you believe that the tech-fueled multiple expansion of the cap-weighted index has the market stretched, there still may be relative opportunity in these dividend growers moving forward. In the past month, stocks in the reflationary sectors, including materials and industrials, also contributed to positive outperformance. Each of these dividend growers have traversed another stress period while increasing shareholder payouts, demonstrating the types of business models that can generate long-run returns over multiple business cycles.
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.
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Analyst’s 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.
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