The value of dividend growth strategies to portfolios today and beyond
In times of uncertainty, pivoting away from concentration and leveraging the stability of a dividend growth strategy can potentially help investors reduce the impact of volatility.
Dividend growth strategies can feel like your father’s—or grandfather’s—Oldsmobile compared to the glitz and glamour of AI stocks. But when market volatility increases, seemingly stodgy dividend-payers often become compelling for their stability.
Companies committed to the consistent return of shareholder value typically demonstrate quality traits like balance sheet strength and reliable cash flow, which can help them withstand economic uncertainty. And dividend growth strategies that focus on firms that have consistently increased their annual dividend payouts each year can help investors meet market uncertainty with enhanced equity income, improved diversification, and lower market drawdowns.
SPHYDA tracks firms with over two decades of dividend increases
Concerned about all the research you will need to do before you can even begin to incorporate a dividend growth strategy into your portfolio? There is a simpler way to get started.
The S&P High Yield Dividend Aristocrats Index (SPHYDA) screens for firms within the S&P 1500 Index that have consistently increased their dividend per share for at least 20 consecutive years. These stocks are then weighted based on their current indicated yield, providing investors with a curated list of stocks to help them implement a dividend growth strategy.1
The average yearly increase for the more than 155 firms in the index is 34 years and nine constituents have over 60 consecutive years of dividend increases (Figure 1). These are companies that started raising their dividends when John F. Kennedy was president and before the Beatles arrived in the US.
Track records like this demonstrate these firms’ consistent ability, and willingness, to return greater shareholder value across different market regimes, economic environments, and macro cycles.
The emphasis on stability and consistency of dividends results in a roster of household names like Coca-Cola, Verizon, Pepsi, Johnson & Johnson, IBM, Exxon, and McDonald’s. And SPHYDA's top 10 companies illustrate the diverse nature of firms returning value to shareholders (Figure 2).
Figure 2: Top 10 companies in SPHYDA
| Company Name | GICS Sector | Weight (%) |
|---|---|---|
| Verizon Communications Inc | Communication Services | 2.3% |
| Realty Income Corp | Real Estate | 2.2% |
| Automatic Data Processing Inc | Industrials | 1.8% |
| Kenvue Inc | Consumer Staples | 1.7% |
| Kimberly-Clark Corp | Consumer Staples | 1.7% |
| Target Corp | Consumer Staples | 1.7% |
| AbbVie Inc | Health Care | 1.6% |
| Chevron Corp | Energy | 1.5% |
| Texas Instruments Inc | Information Technology | 1.4% |
| Sysco Corp | Consumer Staples | 1.4% |
Source: Bloomberg Finance, L.P., as of July 31, 2026. Characteristics are as of the date indicated, are subject to change, and should not be relied upon as current thereafter. As of July 31, 2026, the top ten holdings accounted for 17.4% of the index.
Enhance equity income: Dividends can preserve purchasing power by outpacing inflation
Following the sizable runup in equities over the past few years—market gains fueled by mega cap growth non-dividend paying stocks—the S&P 500 Index’s dividend yield (1.1%) is less than half its historical average payout percentage (2.57%) as measured over the past 30 years.2 Today’s rate is also well below inflation, both based on today’s levels of inflation (3.5%) as well as the historical inflation rate over the past 20 years (2.6%) and the five-year forward breakeven inflation rate (2.3%).3
But SPHYDA, given its focus on reliable dividend payers, has a trailing 12-month dividend yield of 2.8%.4 That rate is above the market’s historical payout and measures of inflation—indicating the potential for both enhanced nominal equity income and enhanced real equity income.
Historical trends indicate the same result. Since inception, SPHYDA has consistently exhibited higher trailing 12-month dividend yields than those of a comparable broad market index (S&P 1500 Index), due to its selection approach and yield-weighted methodology (Figure 3).
SPHYDA has produced a consistent yield premium over the market—an average trailing 12-month yield of 2.8%, ranging from a low of 2.5% to a high of 3.9%. In comparison, the broad market composite has averaged a 12-month dividend yield of 1.8%, ranging from a low of 1.1% to a high of 2.4%. On average, SPHYDA has out-yielded the S&P 1500 Index by 117 basis points (Figure 3).
Improve diversification: Limit exposure to Mag 7 and concentration
For investors concerned about the concentration of mega-cap growth stocks in their US equity exposures, the SPHYDA Index’s dividend growth strategy provides a path to remaining invested in US equities with less concentration on current market leaders. In fact, the SPHYDA Index includes only one of the Magnificent 7 stocks—and at a relatively small weight given Microsoft’s low yield (Figure 4).
SPHYDA is also less top heavy than the broad market; its top 10 stocks comprise just 17.4% of the total exposure compared to 36.1% for the S&P 500 Index and 30.9% for the broader S&P 1500 Composite Index.5 And the max weight of a firm within SPHYDA is just 2.3% compared to almost 7.6% for the broad market—another indication of lower stock specific risk.6
The SPHYDA Index can also help investors counter the S&P 500’s heavy Growth bias. The S&P 500 Index allocates 38.2% to Growth stocks, just 8.2% to Value exposures,7 and the rest to “core” buckets.
But SPHYDA allocates 16.5% to pure Value, just 1.0% to pure Growth, and the rest to “core.”8 A 50/50 split between the market and SPHYDA-driven allocation brings better balance to a broad US equity allocation. The weights to pure Growth and pure Value of this 50/50 mix would be 19.6% and 12.3%, respectively, diversifying the heavy Growth bias investors inherit when owning the “market.”
Figure 4: SPHYDA Index has a much lower weighting of Magnificent 7 stocks
| Company name | S&P 500 Index | S&P 1500 Index | SPHYDA Index |
|---|---|---|---|
| NVIDIA Corp | 7.6% | 7.0% | - |
| Apple Inc | 7.0% | 6.5% | - |
| Alphabet Inc | 5.9% | 3.0% | - |
| Microsoft Corp | 5.4% | 5.0% | 0.4% |
| Amazon.com Inc | 4.1% | 3.8% | - |
| Meta Platforms Inc | 3.2% | 3.0% | - |
| JPMorgan Chase & Co | 2.9% | 2.6% | - |
| Total | 36.1% | 30.9% | 0.4% |
Source: Bloomberg Finance, L.P., as of July 31, 2026. Characteristics are as of the date indicated, are subject to change, and should not be relied upon as current thereafter. Alphabet includes both Class A and Class C stock combined to calculate the portfolio weight. Weights are as of the date indicated, are subject to change, and should not be relied upon as current thereafter.
SPHYDA’s constituents show better sector-wise diversification as well. While the market is heavily concentrated among tech and tech-like sectors, SPHYDA is less reliant on one specific sector (Figure 5).
No one area makes up more than 20% of SPHYDA and no sector has a weight below 2.3%, unlike the broad market’s three. SPHYDA’s one sector that is near 2.3% is a tech-related sector—meaning if used alongside the broad market, SPHYDA can reduce concentration in single names while also balancing sector exposure.
Figure 5: Sector breakdown shows the SPHYDA Index isn’t tech heavy
| GICS sector | S&P 500 Index | S&P 1500 Index | SPHYDA Index |
|---|---|---|---|
| Communication Services | 9.91% | 9.32% | 2.34% |
| Consumer Discretionary | 9.40% | 9.57% | 4.39% |
| Consumer Staples | 4.66% | 4.56% | 16.62% |
| Energy | 3.36% | 3.50% | 2.73% |
| Financials | 12.48% | 12.81% | 13.52% |
| Health Care | 9.10% | 9.19% | 7.78% |
| Industrials | 8.70% | 9.76% | 19.09% |
| Information Technology | 36.60% | 34.80% | 7.55% |
| Materials | 1.77% | 2.02% | 7.37% |
| Real Estate | 1.88% | 2.27% | 4.43% |
| Utilities | 2.15% | 2.19% | 14.17% |
Source: Bloomberg Finance, L.P., State Street Investment Management, as of July 31, 2026. Weights are as of the date indicated, are subject to change, and should not be relied upon as current thereafter. Green shading indicates overweight.
The SPHYDA Index’s constituents also show greater market cap diversification. By covering a spectrum of large-, mid-, and small-cap companies, SPHYDA takes advantage of the resilience of dividend growers across the cap spectrum and embeds the potential benefits of small-size factor tilt alongside its dividend/value bias.
Mitigate market drawdowns: Average drawdown is lower than the S&P 1500 Index’s
Given their higher quality, time-tested organizational profile and a track record of consistently returning value to shareholders through various economic weather, dividend growth stocks have historically held up better than the overall market during times of stress. Since the SPHYDA Index’s inception over 21 years ago, the index has had a lower average monthly drawdown than the broader market, as measured by the S&P 1500 Index (Figure 7).
The same trend holds when looking at the worst 15 months for the market. The average drawdown for the S&P 1500 over its 15 worst months since 2005 is -9.4% compared to -9% for the SPHYDA Index (Figure 7).9 This underscores how reliably boosting dividends for decades illustrates companies’ financial strength and discipline, which can be especially attractive in times of uncertainty.
Dividend grower’s role in today’s portfolio
Continued uncertainty around tariffs and trade, inflation, and geopolitical realignment means market volatility is likely to continue. Investors looking to stabilize portfolios using a dividend growth strategy may consider allocating to the SPHYDA Index with the State Street® SPDR® S&P® Dividend ETF (SDY).
If you think of the SPHYDA Index as a greatest hits song list, think of SDY as the prepared playlist you can use whenever you’re in the mood. SDY is a passive index fund that aims to closely mirror the SPHYDA Index, offering investors an easy way to implement a dividend growth strategy in a single trade.
By leveraging the dividend growth strategy of the SPHYDA Index, SDY aims to provide an all-cap equity income exposure with quality, value, and size biases, to help:
- Enhance equity income at a time when traditional stocks are yielding far less than normal.
- Reduce the concentration risks in broad market US exposures like the S&P 500 and S&P 1500.
- Stabilize portfolios with lower average monthly drawdown than the broader market in times of stress.
Sure, dividend investing can seem like a longer road to building potential wealth than the capital appreciation investors have gotten used to over the past few years. But SPHYDA’s blend of equity income and potential for market-based capital appreciation can potentially provide the portfolio stability investors may be seeking in today’s uncertain environment.