Market forces continue to provide investors with an opportunity in US and global dividend stocks, as inflation and rising interest rates persist as headwinds for growth stocks. Value stocks may benefit the most from this theme, but Dividend Aristocrats can help investors play the value trade while using the stable dividend focus to help protect against any further market drawdowns.
Investors in US and global equities are continuing to experience short-term market shocks. High inflation prints, as measured by the personal consumption expenditures (PCE), have forced the US Federal Reserve (Fed) to pursue an aggressive rate increase policy this year. On 15 June 2022, the Fed announced a 75 basis point increase in the Fed Funds Target Rate. The Fed last increased interest rates by 75 basis points in November 1994, when (then) Fed Chair Alan Greenspan was worried about the economy overheating, but inflation was not as high.
The increase in interest rates affects stock prices by compressing the valuation premium of future earnings. This will often have more of an effect on growth stocks, as they would typically trade at higher price-to-earnings multiples. While the Fed has been clear on its intention to raise interest rates, this policy has benefited the relative performance of value stocks, including Dividend Aristocrats. Similar to the first half of 2015, the last time the Fed engaged in a program to raise interest rates, the S&P High Yield Dividend Aristocrats® Index has outperformed the S&P 500® Index during the first six months of 2022 (see Figure 1).
Figure 1: Dividend Aristocrats Performance Against Fed Funds Rate (Trailing 6-month returns)
In addition to providing exposure to the value trade, Dividend Aristocrats can also be quite defensive. Dividend Aristocrats stocks tend to be lower beta, which can offer a degree of protection in periods of quick market drawdowns. Since mid-2015 – six months prior to the Fed engaging in a program to raise rates – the S&P 500® Index has experienced 11 pullbacks of greater than 5% during 30-day periods.1 In 9 of the 11 drawdowns, the SPDR® S&P® U.S. Dividend Aristocrats UCITS ETF (ticker: SPYD) has delivered protection through excess returns (see Figure 2).
The beginning of the pandemic (March 2020) was the only material outlier. This was because growth stocks (e.g. technology and communication services) were seen as the relative safe haven based on the idea that a global lockdown would accelerate structural changes, such as remote working. Even including this negative outlier, the average excess returns of SPYD during all 11 pullbacks is 2.97%.
Figure 2: US Equity Drawdowns Greater than 5% (Since Mid-Rear 2015)
In conclusion, 2022 continues to offer investors an opportunity in US and global dividend stocks, as inflation and rising interest rates persist as headwinds for growth stocks. Value stocks may benefit the most from this theme, but Dividend Aristocrats can help investors play the value trade while using the stable dividend focus to help protect against market drawdowns.
At SPDR® ETFs, we offer exposures that seek to fully replicate the S&P Dividend Aristocrats® indices such as the SPDR® S&P® U.S. Dividend Aristocrats UCITS ETF and SPDR® S&P® Global Dividend Aristocrats UCITS ETF, each of which also has an ESG version available.
On 22 June 2022, the SPDR® S&P® U.S. Dividend Aristocrats UCITS ETF (Ticker: SPYD GY) became the second SPDR UCITS ETF to gather more than $1 billion of net inflows year to date (the first was the SPDR® Bloomberg SASB U.S. Corporate ESG UCITS ETF). With more than $4 billion in assets under management and a monthly average exchange volume of $44 million, SPYD has the tightest spread among comparable UCITS ETFs with an average spread of 11.76 basis points this year.2
To learn more about these ETFs, and to view full performance histories, please click on the links below to be taken to their fund pages.
SPDR® S&P® U.S. Dividend Aristocrats UCITS ETF
1 S&P 500® Index drawdowns over 5% based on 30-day trailing return since 1 July 2015. At each trough, the trailing returns 30 days before/after have been removed so as not to duplicate pullbacks.
2 Source: Bloomberg Finance LP as of 22nd June 2022.
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For Investors in Austria: The offering of SPDR ETFs by the Company has been notified to the Financial Markets Authority (FMA) in accordance with section 139 of the Austrian Investment Funds Act. Prospective investors may obtain the current sales Prospectus, the articles of incorporation, the KIID as well as the latest annual and semi-annual report free of charge from State Street Global Advisors Europe Limited, Branch in Germany, Brienner Strasse 59, D-80333 Munich. T: +49 (0)89-55878-400.F: +49 (0)89-55878-440.
For Investors in Finland: The offering of funds by the Companies has been notified to the Financial Supervision Authority in accordance with Section 127 of the Act on Common Funds (29.1.1999/48) and by virtue of confirmation from the Financial Supervision Authority the Companies may publicly distribute their Shares in Finland. Certain information and documents that the Companies must publish in Ireland pursuant to applicable Irish law are translated into Finnish and are available for Finnish investors by contacting State Street Custodial Services (Ireland) Limited, 78 Sir John Rogerson’s Quay, Dublin 2, Ireland.
For Investors in France: This document does not constitute an offer or request to purchase shares in the Company. Any subscription for shares shall be made in accordance with the terms and conditions specified in the complete Prospectus, the KIID, the addenda as well as the Company Supplements. These documents are available from the Company centralizing correspondent: State Street Banque S.A., Coeur Défense - Tour A - La Défense 4 33e étage 100, Esplanade du Général de Gaulle 92 931 Paris La Défense cedex France or on the French part of the site ssga.com/etfs. The Company is an undertaking for collective investment in transferable securities (UCITS) governed by Irish law and accredited by the Central Bank of Ireland as a UCITS in accordance with European Regulations. European Directive no. 2014/91/EU dated 23 July 2014 on UCITS, as amended, established common rules pursuant to the cross-border marketing of UCITS with which they duly comply. This common base does not exclude differentiated implementation. This is why a European UCITS can be sold in France even though its activity does not comply with rules identical to those governing the approval of this type of product in France.The offering of these compartments has been notified to the Autorité des Marchés Financiers (AMF) in accordance with article L214-2-2 of the French Monetary and Financial Code.
For Investors in Germany: The offering of SPDR ETFs by the Companies has been notified to the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) in accordance with section 312 of the German Investment Act. Prospective investors may obtain the current sales Prospectuses, the articles of incorporation, the KIIDs as well as the latest annual and semi-annual report free of charge from State Street Global Advisors Europe Limited, Branch in Germany, Brienner Strasse 59, D-80333 Munich. Telephone: +49 (0)89-55878-400. Facsimile: +49 (0)89-55878-440.
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SPDR ETFs is the exchange traded funds (“ETF”) platform of State Street Global Advisors and is comprised of funds that have been authorised by Central Bank of Ireland as open-ended UCITS investment companies.
State Street Global Advisors SPDR ETFs Europe I & II plc issue SPDR ETFs, and is an open-ended investment company with variable capital having segregated liability between its sub-funds. The Company is organised as an Undertaking for Collective Investments in Transferable Securities (UCITS) under the laws of Ireland and authorised as a UCITS by the Central Bank of Ireland.
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Equity securities may fluctuate in value in response to the activities of individual companies and general market and economic conditions.
The returns on a portfolio of securities which exclude companies that do not meet the portfolio's specified ESG criteria may trail the returns on a portfolio of securities which include such companies. A portfolio's ESG criteria may result in the portfolio investing in industry sectors or securities which underperform the market as a whole.
The ETFs listed above have historically paid dividends to investors and/or invest in the securities of dividend paying issuers; however, there is no guarantee that these ETFs will consistently pay dividends to investors in the future or will appreciate in value. Investors could lose money by investing in ETFs.
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