Dividend Aristocrats: Playing the Recovery in 2021

  • Market sentiment continues to favour an economic recovery in 2021, as vaccination programs help support a pick-up in business activity
  • Companies are keen to renew their commitments on returning capital to shareholders through dividends
  • A stable dividend strategy, such as the Dividend Aristocrats index tracked by SPDR ETFs, aims to offer investors strong yield factor exposure through higher quality stocks from a diverse range of sectors

Backdrop for Dividends

The current economic sentiment provides a supportive case for dividend stocks based on recent earnings guidance, analyst projections and general optimism towards a continued economic recovery. This environment could present an opportunity for European ETF investors to return to dividend strategies, following momentum seen in other recovery plays.

US equity investors heard a number of positive themes this earnings season, which helped shape the future estimates on forward dividends. The major tailwinds supporting the ongoing case for investors to consider increasing yield factor exposure include:

  1. Positive analyst estimates reflecting significant upside potential for dividends;
  2. An increase in business activity; and
  3. Relatively attractive valuations for dividend stocks, which suffered significantly in 2020 and may benefit from further economic reflation.

While investor sentiment has become more positive on dividend stocks, investor flows have yet to follow at the same rate seen for other recovery exposures, such as Size and Value. As Figure 1 demonstrates, European Smart Beta investors have been pouring money into Size and Value ETFs since Q4 of last year, when news on the deployment of vaccines was impacting asset prices. Dividend ETFs have yet to experience similar inflows but we can likely expect to see investors return to these exposures as the economic recovery persists.

The S&P® High Yield Dividend Aristocrats Index is a stable dividend strategy that selects stocks which have increased their total dividend per share amount every year for at least 20 consecutive years. By adding US Dividend Aristocrats to a portfolio, investors can increase exposure to stocks forecasting an increase in dividend yields. In addition, the strategy provides a positive quality bias, flexibility for investors seeking sector diversification and the maximum exposure to the yield factor.

The Dividend Aristocrats Index uses a relatively unconstrained approach to targeting quality income. There are no restrictions in the methodology to limit sector or factor exposure. This allows the strategy maximum flexibility to go ‘wherever it needs’ to find quality income. As a result, the S&P® High Yield Dividend Aristocrats Index offers the strongest yield factor exposure of the major indices tracked by European-listed ETFs (see Figure 2).

Accessing this Exposure with SPDR ETFs

In one simple trade, investors who are optimistic about the economic momentum behind dividend stocks, and who are seeking to add yield factor exposure to the portfolio, can gain the desired exposure through the SPDR® S&P® U.S. Dividend Aristocrats UCITS ETF. Available in both unhedged and EUR-hedged share classes, this fund tracks the S&P® High Yield Dividend Aristocrats Index, which offers an indicative yield premium of 1.73%1  over the S&P 500 after the annual rebalance last month.

To learn more about these ETFs, and to view full performance histories, please follow the links below:

SPDR® S&P® U.S. Dividend Aristocrats UCITS ETF (Dist)
SPDR® S&P® U.S. Dividend Aristocrats EUR Hdg UCITS ETF (Dist)



European-Domiciled ETP Segment Flows (Top/Bottom 5, $mn)

European-Domiciled ETP Asset Category Flows ($mn)

Sources: Bloomberg Finance L.P., for the period 18-25 February 2021. Flows are as of date indicated and should not be relied upon as current thereafter. This information should not be considered a recommendation to invest in a particular sector or to buy or sell any security shown. It is not known whether the sectors or securities shown will be profitable in the future.