The Dividend Aristocrats Index underperformed S&P 500 between 1989 and 1999.
A $100 investment in the Dividend Aristocrats at the end of 1989 turned to $413.
A $100 investment in the S&P 500 at the end of 1989 turned to $534.
In 1998 and 1999 the Dividend Aristocrats underperformed by 12% and 26%.
They underperformed for basically a decade.
Since the end of 1999 however:
A $100 investment in the Dividend Aristocrats index turned to $187.45 by 2009 and $742.15 by 2019.
A $100 investment in S&P 500 turned to $90.94 by 2009 and $324.34 by 2019.
By the end of 2022 the investment was worth $953 in the aristocrats versus $405 in S&P 500.
Why am I posting this?
I often hear people stating that if your strategy does not perform well versus some benchmark over an arbitrarily chosen period of time like 5 or 10 years, you should abandon your strategy and just hug the benchmark
The history of the Dividend Aristocrats gives a good illustration on the dangers of potentially abandoning your strategy at the worst time possible
Past performance is not indicative of future results
Returns tend to come in long cycles
Returns can also revert to the mean
Nobody knows what the future holds, hence the best strategy in my opinion is the one that can help the investor reach their own goals and objectives
They have to be able to stick to that strategy, through thick or thin to give it any chance of success
The billions dollar question is whether a long-term strategy is “permanently broken” or just experiencing “temporary headwinds” (even if that’s a decade).
Why am I really posting this?
To give you context.
I see chatter that the Dividend Aristocrats index has underperformed S&P 500 in 2023.
Some weak hands would likely see that as a problem. I personally do not care, for as long as the companies I hold manage to grow dividends as a group.
Of course, they won’t tell you that the Dividend Aristocrats index has outperformed S&P 500 in 2022.
I didn’t care about that either. This is just pure noise. Relative performance comparisons are mean reverting and to be honest they do not add much value to me as an investor.
It’s also pretty logical to conclude that a group of 500 companies (S&P 500) would likely have different performance than a group of 40 – 60 companies (Dividend Aristocrats Index).
Changing strategies frequently because of past relative performance over an arbitrary period of time is basically called performance chasing. Chasing what’s hot could work or it could not. It’s not the type of game I want to play. I doubt it works either.
It reminds me of the reason why many investors fail to make money. They consistently buy high and sell low.
In other words, they chase what is hot, and never find a strategy that works for them to achieve their goals and objectives.
My strategy is to invest in companies that can grow dividends over time.
I try to assemble a diversified portfolio of those companies, and go through a process where I try to find the ones that stand a chance of growing those dividends because they are growing those earnings. I also try to buy those companies at attractive valuations. I also try to buy the ones with sustainable dividend payouts. Dividends grow above the rate of inflation over time, and they are more stable, reliable and easier to forecast than share prices. Hence, my strategy is to focus on building out a sustainable dividend income stream that would pay for my retirement. I do not care about keeping up with the Dow Joneses. (pun intended).
My goal has always been to generate enough in dividends to pay for expenses in retirement.
If I outperform S&P 500 over time, (or some other benchmark someone else chooses to compare me against) it won’t affect me, for as long as my dividends are covering expenses and growing at or above rate of inflation. If I die at the age of 90 with $9 million in my portfolio, versus $10 million that I could’ve had with another strategy, I would not care less.
If I underperform S&P 500 over time, (or some other benchmark someone else chooses to compare me against) it won’t affect me, for as long as my dividends are covering expenses and growing at or above rate of inflation. If I die at the age of 90 with $10 million in my portfolio, versus $9 million that I could’ve had with another strategy, I would not care less.
