STOXX has expanded its Maximum Dividend Strategy Index family with the launch of the STOXX Global Maximum Dividend 40, the STOXX Asia/Pacific Maximum Dividend 40, the STOXX North America Maximum Dividend 40 and the STOXX Japan Maximum Dividend 40 indices.
The expanded STOXX Maximum Dividend Strategy Index family reflects growing appetite among investors for high-dividend equities.
The new indices reflect growing appetite among investors for high-dividend equities and have been designed to act both as a benchmark for actively managed funds and as an underlying for exchange-traded funds (ETFs) and other investable products.
The new STOXX Maximum Dividend Indices represent a hypothetical investment portfolio that aims to maximise the dividend yield of the STOXX Global 1800, STOXX Asia/Pacific 600, STOXX North America 600 and STOXX Japan 600 indices by selecting those 40 companies in the underlying index that have the highest expected dividend yield.
“With the expansion of the STOXX Maximum Dividend Index family to further markets, we are adding global exposure to our successful range of innovative dividend strategy indices,” said Hartmut Graf, chief executive officer of STOXX. “The new indices offer market participants sophisticated tools to follow the dividend return of the 40 top dividend yielding companies selected from major markets’ benchmark indices.”
To be eligible for inclusion in one of the STOXX Maximum Dividend Indices, a company must be a component of the respective underlying index, pay a dividend in the upcoming quarter, have a free-float market capitalisation of at least 1 billion euros and an average daily trading volume of at least 4 million euros over the last three months at the time of selection.
The indices are weighted by components’ liquidity-adjusted expected dividend yield: the higher a company’s dividend yield and the more liquid it is, the higher is its weight in the respective index. The maximum component weight is capped at ten percent to prevent the index from being dominated by single companies.
A stock’s expected dividend yield is determined by the announced and the estimated dividend amount, as well as the closing price of the stock at the time of selection. In order to improve the index’s liquidity, an additional liquidity screening is applied during the selection process. This results in a liquidity-adjusted expected dividend yield used for selection and weighting of the index constituents.
The composition of the indices is reviewed quarterly, with the exception of the STOXX Japan Maximum Dividend 40 Index, which is reviewed semi-annually. If fewer than 40 companies meet the inclusion criteria, components from the last period will be added to the composition until 40 components are reached.
With interest rates and government bond yields at record lows, investors have been looking for alternative sources of income. One area investors have turned to is high-dividend equities, which has helped ETFs in this space to accumulate substantial inflows over the past year. Reacting to this demand, ETF providers have rolled out a plethora of new dividend-focused funds covering a range of regions, countries and even sectors. It is likely, therefore, that these latest dividend-oriented indices will be examined by ETF providers for their potential to underlie future funds.
Indeed, a number of STOXX’s existing dividend-focused indices are already in use as underlying benchmarks for ETFs. These include the EURO STOXX Select Dividend 30 Index, which is tracked by iShares, db X-trackers, ETFlab, ComStage and Source; the STOXX Europe Select Dividend 30 Index, which is tracked by iShares, Lyxor and First Trust; and the STOXX Global Select Dividend 100 Index, which is tracked by iShares and db X-trackers.