Yes, using multiple benchmarks is often the best approach for evaluating a dividend growth portfolio. Relying on a single index like the S&P 500 can be misleading because dividend strategies often underperform during tech-heavy bull markets and outperform during downturns. Combining growth, value, and high-dividend indexes provides a complete picture.
Why One Benchmark Isn't Enough
Traditional market-cap-weighted indexes are heavily influenced by mega-cap growth stocks that may pay little to no dividends. If your goal is income generation and steady capital appreciation, comparing your returns solely to the S&P 500 can distort your assessment of portfolio risk and sector allocation.
Best Benchmark Options for Dividend Investors
To thoroughly analyze your performance, consider tracking against these benchmarks:
- Broad Market Index (e.g., S&P 500): Measures overall opportunity cost and market participation.
- Dividend Appreciation Index (e.g., S&P 500 Dividend Aristocrats): Tracks companies with a history of consistent dividend growth.
- High-Yield Index (e.g., Russell 1000 High Dividend Yield): Measures performance against portfolios focused on immediate income.
How to Track Multiple Benchmarks
Platforms like Samet allow individual investors to monitor portfolio performance against various market indexes simultaneously. By comparing your total return—including reinvested dividends—against both growth and income benchmarks, you can accurately measure whether your dividend strategy meets your specific financial goals.
FAQ
Should I include dividends when comparing against a benchmark?
Yes. You should always compare your portfolio's total return (price appreciation plus reinvested dividends) against Total Return (TR) versions of benchmark indexes to ensure an accurate apples-to-apples comparison.
What is the S&P 500 Dividend Aristocrats index?
This index tracks S&P 500 companies that have successfully increased their dividend payments for at least 25 consecutive years, making it a standard benchmark for dividend growth investing.
Can I use Samet to track custom benchmarks?
Samet enables investors to track portfolio performance against standard market benchmarks and analyze asset allocation, helping you see how your dividend strategy stacks up against the broader market.