Zoe Morrison
- There is rising interest among market participants in “dividend growth” companies, which pay increasing dividends over time.
- The Russell 2000® Dividend Growth Index represents small-cap companies whose history of consistent and increasing dividend payments may support long-term performance and hedge against market and inflation risk.
- Over the 20 years ended November 2024, the Russell 2000 Dividend Growth Index achieved an annualised return 0.98% higher than the broader Russell 2000 Index.
Market participants have been turning towards equity dividend strategies as they weigh their investment strategies during times of volatility.
There’s a wide variety of such strategies and two of the most popular approaches are represented by high dividend yield and dividend growth indices:
- High dividend yield indices, such as the FTSE Global Equity High Income Index Series, include companies with a higher-than-average dividend yield, thereby prioritising current income.
- Dividend growth indices, such as the Russell Dividend Growth Index Series and the FTSE Global Dividend Growth Index Series, focus on companies with a proven track record of consistently increasing their dividend payments over the medium- to long-term.
A dividend growth index can offer advantages during periods of market volatility:
- Companies with a history of paying consistent or growing dividends tend to be more financially stable, and dividend-paying stocks may exhibit lower volatility during market declines.
- Companies with a proven history of increasing their dividends are often viewed as mature and stable, reflecting stronger balance sheets. Moreover, consistent dividend growth can signal company managements’ confidence in future earnings and a firm commitment to delivering long-term shareholder value.
- Dividend-paying stocks provide a steady stream of income that can help offset stock price declines, which is especially valuable during volatile markets.
Dividend-paying stocks, especially those with a history of increasing payouts, may hedge against inflation.
FTSE Russell offers dividend growth index versions of the three principal benchmarks within the Russell US Equity index family: the Russell 1000, 2000 and 3000.
The Russell Dividend Growth Index Series includes companies in the Russell 3000® Index that have demonstrated a consistent history of increasing dividend payments over a period of ten years, provides an accessible, transparent and rules-based framework for implementing a dividend growth-focused equity index strategy. Russell 1000® Dividend Growth and Russell 2000® Dividend Growth indexes are also available within the series.
Historical Index Performance, December 2014 - December 2024
Source: Workspace, as of December 2024. Past Performance is no guarantee of future results. Please see the end for important legal disclosures.
Russell 2000 Dividend Growth Index
While small-cap stocks and their potential for growth gained renewed attention in the second half of 2024, on average, smaller companies typically carry higher volatility and liquidity risk than their large-cap counterparts in the Russell 1000 Index.
The Russell 2000 Dividend Growth Index represents the benefits of screening for small and liquid companies that pay consistently increasing dividends. The result is a small cap index with potential for higher returns, lower volatility, and lower drawdown risk relative to the broader Russell 2000 Index. In the chart, we can see that the historic volatility of the Russell 2000 Index has tended to be higher than that of the Russell 2000 Dividend Growth Index.
Rolling Annualised 6-Year Volatility (Monthly Returns)
Source: FTSE Russell, as of November 29, 2024. Past Performance is no guarantee of future results. Please see the end for important legal disclosures.
Over the 20 years ended November 2024, small caps with a consistent dividend growth record also outperformed the market as a whole: the Russell 2000 Dividend Growth Index achieved an annualised return 0.98% higher than the broader Russell 2000 Index.
Russell 2000 and Russell 2000 Dividend Growth Historical Performance
Source: FTSE Russell, as of November 29, 2024. Past Performance is no guarantee of future results. Please see the end for important legal disclosures.
The volatile markets over the past five years have attracted interest to dividend-paying companies due to their potential for stability, consistent income, and their ability to offer a hedge against inflation. A small-cap dividend growth index, such as the Russell 2000 Dividend Growth Index, offers the dual advantage of exposure to dividend-paying stocks while still maximizing small-cap growth potential.
Overall, the Russell 2000 Dividend Growth Index provides an accessible, transparent and rules-based framework for implementing a small cap dividend growth-focused index strategy.
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