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 great.
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 (NYSE:
. 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.
-- Carla Pasternak
P.S. -- While the stocks mentioned in this article are some of
the best dividend stocks in America, the valuations on some of them
are a little high for my taste. But in the latest issue of my
High-Yield Investing newsletter, I found some real bargains that
yield from 6.5% on up to 12.6%. To learn how to get the names and
ticker symbols of these securities, and gain access to my premium
research reports, click here.
Carla Pasternak does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC owns
shares of T in one or more of its "real money" portfolios.
© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.