Dividend Aristocrats: Recovery Sentiment Extends to Eurozone Dividends

  • Positive market sentiment towards an economic recovery extended to eurozone dividend stocks, as vaccination programs help support a pick-up in business activity.
  • Companies are keen to renew their commitments on returning capital to shareholders through the dividend.
  • 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

Economic sentiment continues to provide a supportive case for dividend stocks entering the first earnings season of 2021, with analyst projections and general optimism towards a further business recovery. This environment could present an opportunity for European ETF investors to return to dividend strategies, as they caught up with other recovery plays in March.

Eurozone equity investors are looking towards a number of positive themes during the Q1 2021 earnings season, which help shape the future estimates on forward dividends. The major tailwinds supporting the ongoing case for investors to consider increasing yield factor exposure are

  1. Positive analyst estimates reflecting significant upside potential for eurozone dividends;
  2. An increase in business activity; and
  3. Relatively attractive valuations for eurozone 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 2020, when news on the deployment of vaccines affected asset prices. Dividend ETFs are starting to see some flows with investors adding $696 million of net inflows in March 2021.1

Figure 1: Cumulative European-Listed Smart Beta Flows (Last 6 Months, $ Millions)

The S&P® Euro High Yield Dividend Aristocrats Index is a stable dividend strategy that selects stocks which have maintained or increased dividend per share amount every year for at least 10 consecutive years. By adding Euro Dividend Aristocrats to a portfolio, investors can increase exposure to stocks forecasting an increase in dividend yields. In addition, the strategy provides investors exposure to lower leverage stocks and a diversified approach to significant yield factor exposure.

The Euro Dividend Aristocrats Index uses a relatively balanced approach (Figure 2) to targeting quality income. This allows the strategy flexibility to go ‘wherever it needs’ to find quality income. The balanced approached is often favoured by investors seeking to protect against broader structural headwinds faced by eurozone equities.

Figure 2: FaCS Active Exposure Comparison (vs. EURO STOXX® Index)

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® Euro Dividend Aristocrats UCITS ETF. This fund tracks the S&P® Euro High Yield Dividend Aristocrats Index, which offers an indicative yield premium of 1.43%2 over the EURO STOXX® Index as of the end of March.

To learn more about this ETF, and to view full performance history, please click on the fund below:

SPDR® S&P® Euro Dividend Aristocrats UCITS ETF



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

European-Domiciled ETP Asset Category Flows ($mn)