Saturday, January 30, 2021

Dividend Aristocrat Changes For 2021

S&P Dow Jones Indices announced the results of its annual rebalancing of the S&P 500 Dividend Index. Three companies are being added in this rebalancing and three are being removed, leaving the number of Dividend Aristocrats at 65. The changes go into effect prior to the market open on February 1, 2021. As noted by S&P, "S&P 500® Dividend Aristocrats® measure the performance of S&P 500® companies that have increased dividends every year for the last 25 consecutive years. The Index treats each constituent as a distinct investment opportunity without regard to its size by equally weighting each company." In addition to the dividend increase requirement, other factors S&P Dow Jones Indices includes in the methodology to select the dividend aristocrats are:

  • a constituent must be a member of the S&P 500 Index.
  • a constituent must have a float-adjusted market cap of at least $5 million for the three months prior to the rebalancing date.
  • a constituent must have an average daily value traded of at least $5 million for the three months prior to the rebalancing date.
  • at each rebalancing, the minimum number of constituents should be 40 and the rebalancing should not result in constituents in a particular GICS sector accounting for more than 30% of the index weight.

Given the methodology followed to create the Aristocrats'' index, sector weightings are far different than the weighting of the broader S&P 500 Index itself. For example, at the January market close Friday, the two largest sector weightings are Industrials, 23.9% and Consumer Staples, 19.1%. The two smallest sectors are Communication Services, 1.5% and Technology, 1.6%. For investors then, it is important to understand these differences and incorporate this information into one's portfolio goals and objectives.

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