I'd bet mostincome investors know about the
S&PDividend Aristocrats Index .
To be included in this index, an S&P 500 company must have
raised itsdividend annually for at least the past 25 years. The
standard is brutal: One slip and you're out. Start all over and
compile another spotless dividend track record over the next 25
This is an index of the bluest of blue-chip dividendstocks .
But I've found a little-known "sister" index that income
investors might find even more interesting -- and profitable.
In a variety ofmarket conditions, this little-known index has
been able to match -- and usually beat -- the broader markets,
while also paying a significantly higheryield .
How can you improve on an index that contains some of the best
dividend-payers in history? The S&P's
Dividend Aristocrats Index has just the answer.
This index holds companies to a still-lofty standard of at
least 20 consecutive years of dividend increases. But it selects
companies from the S&P 1500, which includes midsize and
small-cap companies. That means the High Yield Dividend
Aristocrats areput together in such a way as to balance both
growth and income
, as opposed to the Dividend Aristocrats Index, which is focused
mainly on income.
The two indices have other important differences as well. For
starters, the high-yield version is built around a fixed number
of companies -- 84 of them, to be exact. And instead of being
equallyweighted , each company is weighted according to
itsdividend yield . The companies with the highest yields exert
the most influence on the index's performance.
To prevent a handful of stocks from having too much influence,
however, no onestock can have more than a 4% weighting. Companies
in the index must have amarket cap of at least $2 billion dollars
and have a daily trading value averaging at least $5 million per
And since the High Yield Dividend Aristocrats Index includes
stocks from any of 10 different sectors, it offers much
morediversification than many high-yield indices.
Here's a look at the top 10 holdings of the High Yield
Despite their yield-touting name, the High Yield Aristocrats
are no slouches when it comes to returns either. An S&P study
showed that the index outperformed the S&P 500 for a decade
in virtually all types of market conditions (
to 112%, including dividends).
For the past five years, the results have still been
As we've said many times before, however, it's in bear markets
that the role of dividends in cushioning stockmarket price
declines is most important. In 2008, for example, the S&P 500
lost 37%, but the High Yield Dividend Aristocrats Index was off
by just 23% -- roughly 1,400basis points better.
And from March 2009 to today, which has seen a sharp rally off
thebear market bottom, the index has crushed the S&P 500 --
to 146%, including dividends.
Action to Take -->
Put simply, these stocks perform better inbull
bear markets. Not to mention,
they yield far more in dividends
than your average S&P 500 stock as well.
Now, there are two ways you canprofit from these high-yield
stocks. One would be to buy theexchange-traded fund (
) designed to mirror the index's performance, the
SPDR S&P Dividend (
. But if you're looking for even higher yields than that, you
might try looking into some of the individual stocks contained
within the actual index, like those I've mentioned above.
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