New Additions to the S&P 500 Dividend Aristocrats Class of ...

New Additions to the S&P 500? Dividend Aristocrats? Class of 2019

Smita Chirputkar Director Global Research & Design

This article was originally published as an Indexology? Blog post on March 18, 2019.

The December 2018 rebalance of the S&P 500 Dividend Aristocrats added four new companies, with the changes effective at the open of Feb. 1, 2019. The new firms are Caterpillar Inc., Chubb Limited, People's United Financial Inc., and United Technologies Corp. These four companies have the distinguishing characteristics that allow them to be eligible for inclusion in the S&P 500 Dividend Aristocrats.

The S&P 500 Dividend Aristocrats is designed to measure the performance of S&P 500 constituents that have a record of increasing dividends every year for at least the past 25 consecutive years. The index now comprises 57 securities.

Exhibit 1: New Additions to the Class of 2019

NAME Caterpillar Inc.

SECTOR Industrials

FOUNDED IN 1925

QUALITY RATING

B+

CURRENT YIELD (%)

2.71

S&P 500 YIELD (%)

1.95

S&P 500 DIVIDEND ARISTOCRATS YIELD (%)

2.40

BETA AGAINST S&P 500

1.66

Chubb Limited

Financials

1985 Not Rated

2.26

1.95

2.40

0.78

People's United Financial Inc.

Financials

1842

A

4.85

1.95

2.40

0.55

United Technologies Corp.

Industrials

1934

A

2.76

1.95

2.40

1.06

Source: S&P Dow Jones Indices LLC. Yield and Quality Rating Data as of close of Feb. 25, 2019. Beta data from May 2005 to February 2019. Past

performance is no guarantee of future results. Table is provided for illustrative purposes.

Exhibit 1 compares these firms' characteristics to both the S&P 500 and S&P 500 Dividend Aristocrats. The S&P 500 Dividend Aristocrats historically reflected higher yields than the S&P 500. The newly added members also displayed the same higher yield characteristics as of the close of Feb. 25, 2019.

On average, the S&P 500 Dividend Aristocrats is less volatile than the S&P 500, as exhibited by a beta of 0.8.1 Two of the newly added members displayed a similar trend of lower beta compared to the S&P 500 (during an analysis period from May 2005 to February 2019).

To see how the newly added securities stack up against their respective sectors, we looked at their risk/return characteristics over the period from May 2005 to January 2019 (see Exhibit 2). Historically, the S&P 500 Dividend Aristocrats outperformed the S&P 500 with lower volatility, as shown by the higher Sharpe ratios, regardless of the time horizon being measured.1 The newly added Financials stocks showed higher Sharpe ratios than the sector index, the S&P 500 Financials, while the newly added Industrials stocks showed Sharpe ratios similar to that of the S&P 500 Industrials.

Annualized Returns

Exhibit 2: Risk/Return Profiles ? The New Additions and Their Respective Sector Indices

12.0%

S&P 500 Dividend Aristocrats

Chubb Limited

Caterpillar Inc.

10.0%

8.0%

S&P 500

United Technologies Corp. S&P 500 Industrials (sector)

6.0%

People's United Financial Inc.

4.0% 2.0%

S&P 500 Financials (sector)

0.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

Annualized Risk

Source: S&P Dow Jones Indices LLC. Monthly returns data from May 2005 to January 2019. Past performance is no guarantee of future results. Chart is provided for illustrative purposes.

Our previous study shows that the S&P 500 Dividend Aristocrats outperformed the S&P 500 about 71% of the time when the benchmark was down1 (during an analysis period from Jan. 31, 1990, to Dec. 31, 2018).

Conclusion

The addition of 4 new members brings the number of securities in the S&P 500 Dividend Aristocrats to 57. Of the new additions, 3 are well-established companies, each with over 75 years of corporate history. The newly added constituents have shown trends of higher dividend yields similar to the other constituents of the S&P 500 Dividend Aristocrats. The new members have also provided Sharpe ratios higher than or similar to their corresponding S&P 500 sector indices during the analysis period.

Read more at

1 Soe, Aye and Chirputkar, Smita, "A Fundamental Look at S&P 500 Dividend Aristocrats," S&P DJI.

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The index weights of the new additions to the S&P 500 Dividend Aristocrats Index, as of 2/28/19, are: Caterpillar Inc. 1.70%, Chubb Ltd. 1.66%, People's United Financial 1.78%, and United Technologies 1.79%. Fund holdings and index constituents are subject to change.

The Sharpe ratio is a representation of the risk-adjusted return of an asset or portfolio, per unit of volatility. The higher the Sharpe ratio, the better the risk-adjusted return. As of 6/30/2019, NOBL performance was: one-year 13.78% (NAV)/13.69% (market price), five-year 10.77% (NAV)/10.74% (market price), and since inception 12.29% (NAV)/12.28% (market price). As of 6/30/2019, S&P 500 Dividend Aristocrats Index performance was: one-year 14.32%, five-year 11.22%, and since inception 12.76%. As of 6/30/2019, S&P 500 performance was: one-year 10.42%, five-year 10.71%, and since inception 12.86%. NOBL's inception is 10/9/13 and its operating expenses are 0.35% Performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when sold or redeemed, may be worth more or less than the original cost. Shares are bought and sold at market price (not NAV) and are not individually redeemed from the fund. Market price returns are based on the midpoint of the bid/ask spread at the time NAV is calculated (typically 4:00 p.m. ET for most funds), and do not represent the returns you would receive if you traded shares at other times. Brokerage commissions will reduce returns. Current performance may be lower or higher than the performance quoted. For standardized returns and performance data current to the most recent month end, visit .

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