Dividend Growers vs. High Yielders In Down Markets

David Dierking

Dividend growth investing has long been a popular strategy for both income seekers and long-term growth investors. In the current market environment, dividend growth hasn't been rewarded as investors continue to focus on growth and tech. But long-term, the benefits have been undeniable.

During market declines, dividend aristocrats demonstrate clearly that they can limit downside risk.

Screen Shot 2020-06-29 at 8.16.38 AM
source: S&P Dow Jones Indices

During both down months and the worst-performing down months, dividend payers show that they capture less than 100% downside. The broad universe of high yielders displays modest benefits, but those that combine both high yield and long dividend growth histories can eliminate 30-40% of downside performance.

Moreover, the S&P 500 Dividend Aristocrat universe has shown itself to be about 10% less risky than the S&P 500 overall with particular risk reduction benefits during declining markets

^SPX_^SPXDA_chart
source: YCharts

Dividend growers don't outperform in all all environments, as we saw during the February/March bear market, but over the long-term, this remains a solid strategy.

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