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Nasdaq OMX Global Indexes’ acquisition of the ‘Dividend Achievers’ family from Mergent has proved astute. Since the deal completed in December 2012, assets under management linked to the indices have increased 35% to $19.0 billion from $14.1 billion.
With the acquisition, Nasdaq OMX Global Indexes catapulted itself into one of the largest providers of equity income indices in the world, based on benchmarked assets.
The overwhelming majority of these assets reside within the NYSE Arca-listed Vanguard Dividend Appreciation ETF (VIG), which is linked to the Nasdaq Dividend Achievers Select Index. This fund has consistently proved to be investors’ favourite dividend income ETF, capturing a large chunk of the circa $10 billion of inflows that have gone into dividend income equity products so far this year.
The methodology underpinning the Dividend Achievers indices is surprisingly simple. Aside from the usual liquidity and tradability screens and filters, securities simply need to have recorded at least ten consecutive years of increasing annual regular dividends to be included in the index.
Of course, ten years of consecutive dividend increases is no mean feat. Indeed, once this requirement is fulfilled the entire index universe, namely stocks listed on the Nasdaq Stock Market and NYSE, is whittled down to fewer than 150 securities. Companies that make the grade include names such as PepsiCo, Procter & Gamble, Coca-Cola, Wal-Mart and Abbott Laboratories.
Dave Gedeon, Managing Director at Nasdaq OMX Global Indexes, said: “The Dividend Achiever and other Dividend and Income family indexes help investors track companies and trading strategies positioned to produce yield in this continued low-rate environment. Nasdaq is continually working to improve its dividend and income family of indexes to aid the investment community in benchmarking this increasingly important space.”
Despite the enormous success of the Dividend Achievers and the associated Vanguard product, the range is not without competition. The strongest challenge to these indices comes from the ‘Dividend Aristocrats’ suite offered by S&P Dow Jones. These rival indices, which have been adopted by SSgA SPDR for a series of exchange-traded funds, cleverly balance the pursuit of income with the requirement to ensure dividend sustainability and growth. They achieve this via an approach that considers a range of factors, including dividend payout ratio, maximum dividend yield and dividend growth, to exclude companies whose future dividend payments are perceived to be less sustainable.