An investment strategy that combines companies with low dividend payout ratios, high yields, and strong payout growth is off to a good start in 2019, edging out the S&P 500’s performance in the first four months of the year.
The U.S. large-cap rendition of the strategy returned 19% through April 30, according to Cirrus Research in Tarrytown, N.Y. That’s slightly ahead of the S&P 500’s 18.3% return.
Cirrus tracks the strategy with its sustainable and growing dividends stock baskets. The U.S. large-cap version holds about 65 stocks, including Prudential Financial (ticker: PRU) and HCA Healthcare (HCA).
The dividend growth factor of the strategy—the others are low payout ratios and high yields—has provided a big lift this year. “As the market rebounded in the first few months of the year, growth strategies outperformed, gaining north of [4.5 percentage points] over their value counterpart in the large-cap space,” according to a research note by Pankaj Patel, head of quantitative research at Cirrus Research.
That’s a big turnaround from 2018 where the growth factor “dragged down the performance of the basket” of stocks, he added.
It’s been a strong year for dividend growth investing overall. For example, the Vanguard Dividend Appreciation ETF (VIG) returned 16.6% in the first four months of the year—though it trailed the S&P 500 by about 1.5 percentage points.