Blog Posts — February 26, 2021

New ESG-X Select Dividend Indices Combine Income Strategy with Sustainability Screenings

Qontigo has introduced Select Dividend versions of its ESG-X indices, targeting the highest-yielding stocks within universes screened for responsible investment criteria.

The STOXX® ESG-X Select Dividend Indices track stocks with the highest dividends relative to their home markets. Additionally, they are derived from parent indices that exclude companies involved in activities that are undesirable from a responsible-investing perspective.

Five STOXX ESG-X Select Indices have been introduced: 

Negative exclusions indices 

The STOXX ESG-X suite, introduced in 2018, is composed of versions of established STOXX benchmarks that apply exclusionary screens based on the standard responsible policies of large asset owners. The indices remove companies in breach of Sustainability’s Global Standards Screening, as well as those involved with controversial weapons, thermal coal and tobacco.

The ESG-X indices have proved popular as an increasing number of managers incorporate responsible mandates in their portfolios. Eurex-listed futures and options on the STOXX® Europe 600 ESG-X Index and STOXX® USA 500 ESG-X Index have seen strong demand since launch. The new STOXX ESG-X Select Dividend Indices allow these investors to approach a dividend strategy in a systematic, transparent and efficient way, while abiding by their responsible principles.

Stable payments, high liquidity

In order to secure high and stable dividends, STOXX ESG-X Select Dividend Indices components must comply with the following criteria1:

» Show dividend growth over the past five years 

» Have a payment in four out of five calendar years 

» Have a positive pay-out ratio of less than or equal to 60%2  

In all cases, the indicated annualized dividend is considered. Candidate stocks must also meet a pre-determined liquidity threshold. 

Country diversification, low turnover 

All eligible companies are ranked quarterly according to an outperformance factor that reflects their net dividend yield against that of their national market, hence choosing stand-out payers in each market and avoiding unintended country tilts. Those ranked highest enter the index whenever an existing constituent falls below a pre-determined threshold. In this way, current members are given precedence over candidate stocks to keep the index turnover low. 

The indices are price-weighted with a weighting factor based on the dividend yield. For a complete overview of the methodology, visit the rulebook here.

Dividend cancellations and fast exit 

If a constituent cancels a dividend, the company is deleted from the index two trading days later, with the replacement announced immediately.3 If a company lowers its dividend, it remains in the index until a new selection list is available the next quarter. If a component of the STOXX ESG-X Select Dividend indices is not a component of the STOXX® Developed Markets Total Market ESG-X Index after the latter’s quarterly review, that company is replaced.

A growing pool of responsible investors

This latest addition builds up the successful STOXX ESG-X indices family and showcases the versatility of index-based strategies that broaden the possibilities for investors. The STOXX ESG-X Select Dividend suite’s liquid and targeted indices have a strong and stable income profile, and will contribute to the continued growth of the responsible-focused segment in the core of portfolios.

1 For companies that have more than one share line, the line with the higher dividend yield is chosen. If any of the share lines is a component, then the component share line is chosen.
2 The ratio is 80% in the case of the STOXX Asia/Pacific ESG-X Select Dividend 30 Index
3 The replacement becomes effective on the third trading day. Dividends whose payment is postponed within the same fiscal year do not trigger a fast exit. Dividends whose payment is postponed indefinitely or to a subsequent fiscal year are considered cancelled.