High Yield Dividend Aristocrats

02/20/2015 9:00 am EST

Focus: STOCKS

The S&P High Yield Dividend Aristocrats Index is designed to measure the performance of S&P 1500 Index constituents that have consistently increased dividend payments every year for at least 20 years, explains Beth Piskora, of S&P Capital IQ in The Outlook.

The index is equal-weighted, with constituents re-weighted every quarter. Membership is reviewed each January.

In addition to 20 years of consecutive dividend increases, S&P High Yield 500 Dividend Aristocrats must also have a float adjusted market capitalization of $3 billion and have a minimum of $5 million in daily trading value for the three months prior to rebalancing.

The Index has a minimum of 40 members and no sector can account for more than 30% of it. And, effective as of the close of trading on January 30, 2015, seven stocks are added to the S&P High Yield Dividend Aristocrats Index. The seven additions are:

Albemarle (ALB)—yielding 2.0%
CDK Global (CDK)— yielding 1.1%
Essex Property Trust (ESS)—yielding 2.3%
Expeditors Int’l (EXPD)—yielding 1.4%
Mercury General (MCY)—yielding 4.2%
Realty Income (O)—yielding 4.1%
Ross Stores (ROST)—yielding 0.9%

Since 1926, dividends contributed nearly 40% of total equity returns while capital gains account for the rest.

The S&P High-Yield Dividend Aristocrats Index captures sustainable dividend income and capital appreciation potential, which are key factors in total return expectations.

Unlike indices that focus solely on high dividend yields, which typically hail from the financials and utilities sector, the S&P High Yield Dividend Aristocrats are well diversified across all sectors. The result is that the index portfolio has both capital growth and dividend income characteristics.

Investors who would like to gain exposure to these stocks may want to consider State Street’s SPDR S&P Dividend ETF (SDY).

SDY was launched in November 2005, has nearly $14 billion in assets, and tracks the S&P High Yield Dividend Aristocrats Index. The ETF sports a 2.3% dividend yield, has a 0.35% expense ratio, and trades with a $0.02 bid/ask spread.

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