The Dividend Dilemma – Should I Pay or Should I Grow Now?
- When investing for dividend income, investors have a difficult decision to make – a Dividend Dilemma, if you will.
- Should investors seek a strategy comprised of companies that must achieve an annual dividend growth… or a strategy owning companies that pay a higher dividend today?
- Each has benefits and unique (sometimes overlooked) characteristics that will impact portfolios and investor outcomes.
- The analysis below is provided to help investors analyze the differences between dividend strategies… should I pay or should I grow now?
1 Michael J. LaBella is Head of Global Equity Strategy at QS Investors. Josh Greco is Head of Advisor Business Development, Client Portfolio Manager at QS Investors. Lily Sullivan is Equity Strategist at QS Investors. Source: Bloomberg, NASDAQ, Russell 3000 Index, QS Investors. Dividend Payer is represented by the QS Low Volatility High Dividend Index. Dividend Grower is represented by the NASDAQ US Dividend Achievers Select Index. From December 2004 – September 2019 based on monthly returns. Trailing Dividend Yield is calculated as the ratio of net dividends per share and closing price, multiplied by 100 as of the date of the analysis. Harmonic weighted average approach is used with all underlying components.
Source: Bloomberg, NASDAQ, Russell 3000 Index, QS Investors. Dividend Payer is represented by the QS Low Volatility High Dividend Index. Dividend Grower is represented by the NASDAQ US Dividend Achievers Select Index. 10 Year returns as of December 31, 2019 based on monthly returns. Sector Exposure based on GICS Sector Classification using the following assumption: Non-Cyclical Sectors (Consumer Staples, Health Care, Utilities, Telecommunications) and Cyclical Sectors (Consumer Discretionary, Energy, Financials, Real Estate, Technology, Industrials and Materials).
The QS Low Volatility High Dividend Index (the “Index”) is based on a proprietary methodology created and sponsored by QS Investors, LLC. (QS), the sub-advisor. The methodology calculates a composite “stable yield” score, with the yield of stocks with relatively high price and earnings volatility adjusted downward and the yield of stocks with relatively low price and earnings volatility adjusted upward. The composition of the Index after annual reconstitution and rebalancing may fluctuate and exceed the aforementioned limits due to market movements. The components of the Underlying Index, and the degree to which these components represent certain sectors and industries, may change over time.
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