Dividend Growth Stocks vs. S&P 500

by Slav Fedorov

The S&P; 500 is a stock index comprised of the 500 largest publicly traded U.S. companies. The index was created and is maintained by Standard & Poor's, a leading credit rating and investment research company. In addition to the S&P; 500, Standard & Poor's maintains dozens of domestic and international stock indices to track and measure the performance of various stock sectors and industry groups, including dividend growth stocks.

Dividend Growth Stocks

Some stocks pay moderate dividends but increase them over time. Dividend growers straddle multiple sectors and industry groups. When a dividend is increased, a stock becomes more valuable to new investors, who may bid up its price. Dividends are paid out of corporate profits, so sustainable dividend increases can only be supported by growing profits, and profit growth is the main reason for stock price appreciation.

S&P; Dividend Grower Indices

Standard & Poor's has several indices to track and measure the performance of dividend growth stocks. The S&P; 500 Dividend Aristocrats index is comprised of large cap, blue chip companies within the S&P; 500 that have increased dividends every year for at least 25 consecutive years. The S&P; High Yield Dividend Aristocrats index is comprised of the 60 highest dividend-yielding S&P; Composite 1500 constituents that have increased dividends every year for at least 25 years.


The easiest way to compare the historical performance of the dividend growers and S&P; 500 is to overlap the charts of exchange-traded funds (ETFs) based on the respective indices: SPY for the S&P; 500 and SDY for the S&P; High Yield Dividend Aristocrats Index. SDY is much newer than SPY, so only recent performance can be compared, but both charts are almost identical, giving neither index a clear advantage.

Investor Preferences

Since SPY and SDS perform similarly, the choice between the two may come down to investor preferences. If an investor is looking for growth that matches market averages, SPY (or any other ETF or mutual fund based on the S&P; 500 Index) will do the job. If an investor needs current income that is likely to increase over time to secure a rising income stream, he may decide to go with SDY or a similar product.

About the Author

Based in San Diego, Slav Fedorov started writing for online publications in 2007, specializing in stock trading. He has worked in financial services for more than 20 years, serving as a banker, financial planner and stockbroker. Now working as a professional trader, Fedorov is also the founder of a stock-picking company.

Photo Credits

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