on the correlation between dividend growth and sector performance

Over at Convergex, Chief Market Strategist Nick Colas looks at S&P 500 sector performance as a function of dividend growth.

It makes intuitive sense that a sector growing dividends faster than the SPX will also be an outperformer, given the fact that increasing earnings power is probably behind the rise in payouts to begin with. Colas finds a 65% correlation between dividend growth and performance going back to 2007, on average, which is statistically significant. It works for all sectors except Energy, for obvious reasons these days.

Looking at the 10 major industry sectors of the S&P 500, the importance of dividend payments to price performance over the last 5-10 years becomes clear:

  • The Financials sector, for example, has cut its dividend payments by 42% from 2007 to now.  No surprise, then, that the Financials are 36% lower in price terms since then
  • Many of the groups that have increased their dividend payments the most since 2007 are also top performing sectors since then.  From mid-2007 to now, the Tech sector has increased its payouts by 331%, and it has outperformed the S&P 500 by 69% versus 40% (price appreciation only). Other groups that have bumped their payments more than the S&P overall: Consumer Staples (112%), Industrials (110%), and Consumer Discretionary (171%).  All have outperformed.


Ain’t No Mountain High Enough
Convergex – July 18th 2016

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