Lower market prices but higher dividends

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By Matt Wagner, CFA

This year has reminded – or taught – investors of the risk premium in equities.

In the previous 13 years, global stocks have fallen only three times. All declines were less than 10%.

Global Equity Calendar Annual returns

Lower market prices but higher dividends

US-centric investors have been accustomed to even fewer declines. The stocks only had one negative return of less than 5% over the same period.

That 1 in 13 (8%) hit rate is far below the 18 out of 64 years of negative declines (28% of the time) since the S&P 500 launched in 1957.

Annual returns of U.S. stocks

Lower market prices but higher dividends

The forces weighing on equity returns have not been lacking this year, including:

  • Slowdown and/or negative economic growth
  • Inflation high and rising
  • Monetary policy tightening

But dividend growth — and rising dividend yields — can be a silver lining for investors.

While earnings continued to trend positively, dividend payouts – which tend to be far less volatile than stock prices – showed continued growth.

Dividend growth by region since December 2019

Lower market prices but higher dividends

As dividends have risen and asset prices have fallen, dividend yields have steadily increased. Since September 30, 2021, the dividend yield of the MSCI ACWI index has increased from 1.79% to 2.46%.


Lower market prices but higher dividends

Across all markets, we saw the largest increases in yield from emerging markets – a 1.39% increase from 2.24% to 3.63%.

MSCI Index Dividend Yield

Lower market prices but higher dividends

Overall, global equities have a Dividend Stream® of $1.4 trillion. Forty-four percent of dividends come from the United States, far less than its 61% share of global market capitalization.

If we look at the dividend-flow-weighted versions of US equities, we see a 3.6% return—twice as much as the market-cap-weighted index’s 1.8% return.

For global equities, the market-cap-weighted return is 2.4% compared to a dividend stream-weighted return of 5.2%.

Global Dividend Flow Summary

Lower market prices but higher dividends

Amid the market volatility, the high-dividend segments of the ACWI index – from the first to the third quintiles in the chart below – outperformed.

The non-dividend segment of the market had the worst performance, down more than 30%.

MSCI ACWI Index Dividend Yield Quintiles

Lower market prices but higher dividends

WisdomTree Global Dividend Index

At market close on October 20, the WisdomTree Global Dividend Index (WTGDIV) (DEW) underwent its annual replenishment. The fundamentals-based rebalancing process generally results in increased weighting for companies that are increasing their payouts and less weighting for companies with declining payouts.

From a sector perspective, the most significant change was an increase of more than 3% in the weight of the energy sector.

WisdomTree Global Dividend Index Sector Weightings

Lower market prices but higher dividends

From a country perspective, there have been equally modest changes. The US remains at 44%, the largest weighting, ahead of the 8% exposure for Japan. These weightings compare to a 61% weighting for the United States and 6% for Japan in the MSCI ACWI market-cap-weighted index.

WisdomTree Global Dividend Index Country Weightings

Lower market prices but higher dividends

The biggest dividend payer on the pick date was Microsoft (MSFT), with nearly $21 billion. Dividend stream.

With commodity prices soaring, we see materials companies BHP and Rio Tinto also in this top 20 list.

Top 20 Global Dividend Payers

Lower market prices but higher dividends

Including Saudi Arabia

Saudi Arabia was added as an eligible country in this year’s rebalance.

Saudi Arabia was added to the MSCI Emerging Markets Index in 2019 and has since achieved a weighting of around 5% in this index. Given its growing market capitalization and increased market access for investors, we felt the time was right to add the country to our universe.

Saudi Arabian Oil Co. (Saudi Aramco) (ARMCO) is the world’s largest cash dividend payer with nearly $75 billion. Because much of its stock is tightly held by insiders and/or the Saudi government, only 1% of its market cap weighting is included in market cap-weighted indices.

WisdomTree’s dividend indices make a similar adjustment for emerging market dividend payouts. After making this adjustment, Saudi Aramco is only the 347th largest dividend payer in our starting World Dividend Index universe.

In total, Saudi Arabia has a weighting of around 0.5% in the WisdomTree Global Dividend Index (WTGDIV), which roughly matches its weighting in the MSCI ACWI Index.

Top 10 Dividend Payers in Saudi Arabia

Lower market prices but higher dividends

Matt Wagner, CFA, Associate Director, Research

Matt Wagner, CFA, Associate Director, Research

Matt Wagner joined WisdomTree in May 2017 as an analyst within the research team. In his current role as Managing Partner, he supports the creation, maintenance and reconstitution of our actively managed indices and ETFs. Matt began his career at Morgan Stanley, working as an analyst at Treasury Capital Markets from 2015 to 2017, where he focused on the planning, execution and risk management of unsecured financings. Matt graduated from Boston College in 2015 with a BA in International Studies with a concentration in Economics. In 2020, he earned a Certificate in Advanced Assessment from NYU Stern. Matt holds the Chartered Financial Analyst designation.

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Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.