The Takeaway
The Morningstar Developed Markets Large Cap Dividend Leaders Select Index is designed to mitigate risks by screening for dividend sustainability and consistency, as well as ESG characteristics.
This index is built for investability, with rules to avoid unnecessary turnover and a weighting approach that favors larger stocks, which tend to be cheaper to trade.
Efficient portfolio construction has led to solid long-term performance against the broader high-dividend-paying market segment, as measured by the Morningstar Global Markets High Dividend Yield Index. This was largely due to more favorable stock exposure within sectors, rather than from sector tilts.
Narrowly focusing on yield can create unintended risk and sub-par investment outcomes. Yield traps are real. These stocks may entice investors with their generous distributions but may have weak or deteriorating fundamentals that could hurt performance or unsustainably high payout ratios that could lead to future dividend cuts. Some of the highest-yielding stocks may also be misaligned with the objectives of sustainability-mind investors.
The Morningstar Developed Markets Large Cap Dividend Leaders Select Index is designed to mitigate these risks by screening for high dividend paying stocks with the capacity to sustain their dividend payments and solid environmental, social, and governance characteristics. It has tended to offer a significantly higher yield than the market, with comparable volatility.
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