What does the Centurion ‘Black’ American Express Card, the Qantas Chairman’s Lounge and the S&P Global Dividend Aristocrats Index have in common? Their constituents all belong to a very exclusive club.
Take for instance the S&P Global Dividend Aristocrats Index, which is dividend-weighted and designed to provide exposures to the highest-yielding stocks within the S&P Global Broad Market Index (BMI) that have grown or maintained dividends for at least 10 consecutive years. This is a high bar for companies to clear, with very few companies in the world, and only four in Australia measure up to this requirement. Out of 11,000 stocks in the S&P Broad Market Index (BMI), only the top 100 stocks based on dividend-yield weights are included in the Global Dividend Aristocrats Index.
Together with other criteria, such as a maximum 100% pay-out ratio, which helps to understand the sustainability of dividends in future years (in other words, no company with negative earnings per share), the index’s rules are meant to have the effect of lowering portfolio volatility and reducing average drawdown.
The index criteria also ensure that diversification cuts across sector and country allocations by capping country and sector weights. Domestic high yield equity portfolios tend to have a high Financials sector concentration. In contrast, the chart below shows that no sector in the index has greater than 20% weight. No single stock exceeds 3% weight, whilst sector and country weights are capped at 25% and no more than 20 stocks may be held from any one country. In contrast, in a typical global market-cap weighted index, the US accounts for around 60% of the total index weight.
Source: S&P Dow Jones Indices, as of 31 January 2017 *based on GICS sectors
The weightings for each sector of the index are rounded to the nearest tenth of a percent; therefore aggregate weights for the index may not equal 100%. Weightings are as of the date indicated, subject to change, and should not be relied upon as current thereafter.
Investors may find the top 10 constituents stocks of the S&P Global Dividend Aristocrats Index to be relative unknowns (the index holds only four Australian-listed stocks and they are not in the top 10), but the process ensures that the resulting portfolio includes only the stocks that are most likely to consistently outperform in varying cycles and environments.
Passing these criteria (and more) is no small feat for the constituents, truly making this an exclusive club. While most exclusive clubs are hard to access, Exchanged Traded Funds (ETFs) such as the SPDR® S&P Global Dividend Fund (WDIV), which tracks the S&P Global Dividend Aristocrats Index, offer investors an easy and cost-efficient way to access this opportunity.
WDIV has delivered a total return of 9.19% p.a. over the past three years.1
Learn more about SPDR S&P Global Dividend Fund (WDIV).
1 SSGA, as at 31 January 2017. Total returns reflect combined capital growth and distribution performance assuming all distributions are reinvested; and are shown net of fees.
Issued by State Street Global Advisors, Australia Services Limited (AFSL Number 274900, ABN 16 108 671 441) ("SSGA, ASL") www.ssga.com. This material is of a general nature only and does not constitute personal advice. It does not constitute investment advice and it should not be relied on as such. It does not take into account any investor's objectives, financial situation or needs and you should consider whether it is appropriate for you. You should consult your tax and financial adviser. ©2017 State Street Corporation —All Rights Reserved. AUSMKT -3397 | Expiry date: 30 September 2017.