When pursuing higher dividend-yield stocks, how do investors effectively avoid companies that may cut their dividends? It’s all a function of screening dividends for quality and consistency, according to new insights from Morningstar Indexes based on the Morningstar Developed Markets Large Cap Dividend Leaders Screened Select Index.
In a new report—Dividend Durability and Portfolio Resilience — Morningstar Index experts retest the efficacy of a time-tested approach to dividend investing, balancing yield with dividend durability and environmental, social, and governance-focused characteristics. They base their argument on the Dividend Leaders Screened Select Index which targets companies from the Morningstar Developed Markets Large Cap Index which pay dividends consistently over time.
Its emphasis on dividend durability and quality has enabled the index to outperform its parent benchmark by nearly 4 percentage points of annualized return over the past five years with less risk as measured by standard deviation of returns.
Robert Edwards, Managing Director of Morningstar Indexes, EMEA:
“Rather than considering yield in isolation, balancing quality and durability factors while pursuing yield-oriented stocks can help create a portfolio that is able to weather a wide range of market environments. Implementing this strategy through a rules-based index approach can add consistency and regularity to the investment process and has proven to be a successful approach over time.”
Norbert van Veldhuizen, Head of Product Management Europe, VanEck:
"Dividends are increasingly being reconsidered as a signal of financial discipline and quality. The Morningstar Developed Markets Large Cap Dividend Leaders Screened Select Index is designed to capture companies with a track record of dividend leadership, balancing yield with screens for dividend sustainability and ESG criteria, to help ensure that quality endures across market cycles."
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