Dividend Aristocrats And Survivorship Bias

In a number of articles on Seeking Alpha, I have demonstrated for readers the long-run alpha achieved by the Dividend Aristocrats. Companies that have earned this distinction have increased dividends for twenty-five consecutive years. Collectively, these companies have higher risk-adjusted returns relative to the broad market gauge over at least the last three decades. For this reason, I included the Dividend Aristocrats as one of my "5 Ways to Beat the Market". A depiction of the total return performance of the Dividend Aristocrats relative to the S&P 500 (NYSEARCA: SPY) is pictured below:
Source: Bloomberg
One of the key questions I get from readers about this index is whether there is inherent survivorship bias. Is the outperformance just a function of capturing the companies that have managed to continuously increase shareholder payouts. Notably, the performance detailed above includes the companies that have cut their dividends until the index reconstitution the following January.
In an article published last month entitled A Brief History of Dividnd Aristocrat Crashes, I looked at the largest single-day corrections for the Dividend Aristocrats. I noted that after these large corrections that the Dividend Aristocrats have tended to generate solid forward returns. Readers rightly questioned whether this outperformance extended to former Dividend Aristocrats that have cut their dividends.
The Dividend Aristocrat Index above includes the performance of... Read more