Dividend Aristocrats Stocks Look Sustainable in Many Ways

Recovery plays, such as dividend stocks, have gained momentum as developed market economies continue loosening social restrictions .

Demand for strategies that incorporate ESG into the portfolio management process has been increasing, especially with European ETF investors.

With the launch of Dividend Aristocrats ESG UCITS ETFs, European investors now have the ability to play a sustainable (economic) recovery in dividend stocks with a sustainable philosophy for the portfolio.

Current Environment May Favour Dividends and ESG

Current economic sentiment provides a supportive case for dividend stocks based on recent earnings guidance, analyst projections and general optimism toward a continued economic recovery. This environment could present an opportunity for global equity investors using UCITS ETFs to return to dividend strategies, following momentum seen in other recovery plays. Global equity investors heard a number of positive themes this earnings season, which help shaped the future estimates on forward dividends. 

The foundational philosophy of the Dividend Aristocrats strategies has long been an explicit focus on companies with a long-term track record of stable dividend growth. This is considered a well-established approach to investing, through targeting quality income from dividend stocks. With the addition of new ESG screens to the selection process, the S&P Dividend Aristocrats® ESG indices bring focus to dividend payers with sustainable/ethical business practices. This combination of sustainable investing with stable dividends comes at a good time for investors seeking to increase their dividend exposure in the recovery, while also looking to increase ESG considerations in the portfolio.

ESG Doesn’t Mean Sacrificing Yield

Investors often fear that incorporating ESG considerations in the portfolio selection process inhibits their ability to deliver return. With respect to the dividend income generated from incorporating ESG into the Dividend Aristocrats methodology, this does not appear to be the case when we look at back-tested data for the past decade. Despite some more recent dispersion in yield discount in the Global (Figure 3) and Euro (Figure 2) strategies, the long-term trend still favours parity between a non-ESG and ESG Dividend Aristocrats strategy. In the US (Figure 1) we have to go all the way back to 2012 to see any material separation. At the end 2016, the ESG index actually experience a period of yield premium compared to the non-ESG version.

Investors should be wary to pull out too soon and not benefit from the full recovery of the global economy, as social restrictions continue to loosen. In one simple trade, ESG-conscious investors optimistic about the economic momentum behind dividend stocks, and who are seeking to add yield factor exposure to the portfolio, can now trade the SPDR® S&P® Dividend Aristocrats ESG UCITS ETFs in three regional exposures: US, eurozone and global. 

Figure 1: US Dividend Aristocrats Yield History (Last 10 Years)


Figure 2: Euro Dividend Aristocrats Yield History (Last 10 Years)


Figure 3: Global Dividend Aristocrats Yield History (Last 10 Years)


Figure 4: Dividend Aristocrats ESG Product Overview


Figure 5: European-Domiciled ETP Asset  Flows (Top/Bottom 5, $mn)


Figure 6: European-Domiciled ETP Asset Category Flows ($mn)