INDEX METHODOLOGYMSCI TOP 50 DIVIDENDINDEXESMETHODOLOGY
November 2017

NOVEMBER 2017

MSCI TOP 50 DIVIDEND INDEXES METHODOLOGY | NOVEMBER 2017

CONTENTS

1Introduction ................................................................................. 32

Constructing the MSCI Top 50 Dividend Indexes .......................... 43

2.1

Applicable Universe.................................................................................. 4

2.2

Security Selection and weighting scheme ................................................ 4

Index Maintenance ...................................................................... 6
3.1

Annual Index Review ................................................................................ 6

3.2

Quarterly Index Review ............................................................................ 6

3.3

Weighting Scheme ................................................................................... 7

3.4

Ongoing Event Related Changes .............................................................. 8© 2017 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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MSCI TOP 50 DIVIDEND INDEXES METHODOLOGY | NOVEMBER 2017

1

INTRODUCTION
The MSCI Top 50 Dividend Indexes are designed to represent the performance of the top 50
securities in the Parent Index, ranked by dividend yield, that have increased or maintained
their dividend per share compared to the previous year, or have increased or maintained
their payout ratio if the dividend per share has dropped by no more than 10%.

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MSCI TOP 50 DIVIDEND INDEXES METHODOLOGY | NOVEMBER 20172

CONSTRUCTING THE MSCI TOP 50 DIVIDEND INDEXES

2.1

APPLICABLE UNIVERSE
The applicable universe includes all the existing constituents of an underlying MSCI parent
index (herein, a “Parent Index”). This approach aims to provide an opportunity set with
sufficient liquidity and capacity. The relevant Parent Index would be any MSCI Regional orCountry Index.
The fundamental data used is maintained monthly. MSCI uses dividend yield, 1-year
dividend per share (DPS) growth, payout ratio and price data as of the end of the month
preceding the Index Review, i.e., January, April, July and October. To get price return it alsouses price data as of the end of twelve months preceding the Index Review.
Fundamental data as of the end of January, April, July and October respectively is used foreach index review. The MSCI Top 50 Dividend Indexes are constructed from securities within
the Parent Index that fulfill specific rules on dividend yield, dividend per share growth,
payout ratio and price momentum as indicated in the following sections. Absence of
relevant data renders the security ineligible for inclusion.

2.2

SECURITY SELECTION AND WEIGHTING SCHEME
The MSCI Top 50 Dividend Indexes are constructed with a fixed number of securities
approach. For the initial construction of the Index, a selection universe of securities iscreated from the Parent Index using the following requirements:A minimum dividend yield of 5% and a maximum yield at 20%;



1-year dividend per share (DPS) growth greater than, or equal to, zero;1A price return over the prior 12 months that is not in the bottom 5th percentile
relative to the constituents of the Parent Index as of the previous end of month

The top 50 securities by dividend yield are then identified as potential constituents. The
securities are weighted equally at initial construction subject to sector and country cappingat 35%. A maximum of one security is selected per issuer. In case there are multiple
securities of the same issuer, only the security with the highest dividend yield is eligible. If
the sector or country weight exceeds the applicable capping, the lowest yielding security (orsecurities) from the most overweight sector/country is (are) substituted with the next
highest yielding security (or securities). The process repeats until all sector and country

1

Note that this requirement ensures, by definition, that the stock must have paid a dividend in each of the last two years© 2017 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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MSCI TOP 50 DIVIDEND INDEXES METHODOLOGY | NOVEMBER 2017weights are within the applicable capping constraints. The sector weights are taken into
consideration first followed by country weights.

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MSCI TOP 50 DIVIDEND INDEXES METHODOLOGY | NOVEMBER 2017

3

INDEX MAINTENANCE

3.1

ANNUAL INDEX REVIEWThe annual review of the Top 50 Dividend Index coincides with the May Semi-Annual Index
Review of the Parent Index. Changes are implemented as of close of the last business day ofMay. The pro forma indexes are announced nine business days before the effective date.
Existing constituents are given preference during the constituent selection process for the
Annual Index Review. The existing constituents of the index are retained if they have:i.

a dividend yield of at least 3%,ii.

a 1-year DPS growth greater than or equal to zeroiii.

same or higher payout ratio change compared to the prior year if the 1-year DPS
growth is between -10% and 0%.

In case there are multiple securities from the same issuer, only the security with the highest
dividend yield amongst them is retained.
If the resulting number of securities in the index is less than 50, additional securities arethen selected from the Parent Index in order of decreasing dividend yield as long as theyi.

have a dividend yield between 5% and 20%,ii.

have a 1-year DPS growth greater than or equal to zero andiii.

have a price return over the prior 12 months that is not in the bottom 5th percentile
relative to the constituents of the Parent Index.

iv.

do not belong to an issuer for which another security is already part of the index.

If the total number of securities selected still does not reach 50, the minimum dividend yield
threshold of 5% is reduced until the total number of securities equals 50.
The constituents are equal-weighted subject to sector and country capping at the Annual
Review as described in Section 3.3.

3.2

QUARTERLY INDEX REVIEWThe quarterly index reviews of the Top 50 Dividend Index coincides with the February andAugust Quarterly Index Review and November Semi-Annual Index Review of the Parent
Index. Changes are implemented as of close of the last business day of the month of theindex review. The pro forma indexes are announced nine business days before the effectivedate.

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MSCI TOP 50 DIVIDEND INDEXES METHODOLOGY | NOVEMBER 2017

Existing constituents are also given preference during the constituent selection process for
the Quarterly Index Reviews. The existing constituents from the Index are retained if they
have:
i.

a dividend yield of at least 3%,ii.

a 1-year DPS growth greater than or equal to zero andiii.

same or higher payout ratio change compared to the prior year if the 1-year DPS
growth is between -10% and 0%.

In case there are multiple securities having the same issuer, only the security with thehighest dividend yield amongst them is retained. If the resulting number of securities in theindex is less than 50, additional securities are then selected from the Parent Index in orderof decreasing dividend yield if they have a dividend yield between 5% and 20% and 1-year
DPS growth greater than or equal to zero, and do not belong to an issuer for which anothersecurity is already part of the index .
If the total number of securities selected still does not reach 50, the minimum dividend yield
threshold of 5% is reduced until the total number of securities equals 50.
The constituents are subject to sector and country capping at the Quarterly Index Review as
described in Section 3.3.

3.3

WEIGHTING SCHEME
During the Annual Review, securities are weighted equally with country and sector cappingof 35% each. If there is a breach of a country or sector cap, the lowest yielding securities
from the relevant country or sector with the breach will be replaced by the next highest
yielding securities from the selection universe (as per Section 2.2).
During the Quarterly Reviews, the existing securities are retained at their current weights.
The sector and country weights are both capped at 35%. If there is a breach in the weight ofa sector/country, the weight of the existing securities in that sector/country is capped at
35% and the additional weight is redistributed proportionally to other existing securities. In
this process, the sector weights are taken into consideration first followed by the country
weights. If there is a breach in sector weights while adjusting country weights, the process isrepeated until both sector and country capping are in place. The new securities are now
added to the index one by one with the country and sector caps till we reach 50 or we runout of eligible securities.

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MSCI TOP 50 DIVIDEND INDEXES METHODOLOGY | NOVEMBER 2017

3.4

ONGOING EVENT RELATED CHANGESThe general treatment of corporate events in the MSCI Top 50 Dividend Indexes aims tominimize turnover outside of Index Reviews. The methodology aims to appropriately
represent an investor’s participation in an event based on relevant deal terms and pre-event
weighting of the index constituents that are involved. Further, changes in index market
capitalization that occur as a result of corporate event implementation will be offset by acorresponding change in the Variable Weighting Factor (VWF) of the constituent.
Additionally, if the frequency of Index Reviews in the Parent Index is greater than thefrequency of Index Reviews in the MSCI Top 50 Dividend Index, the changes made to the
Parent Index during intermediate Index Reviews will be neutralized in the MSCI Top 50
Dividend Index.
The following section briefly describes the treatment of common corporate events within
the MSCI Top 50 Dividend Indexes.
No new securities will be added (except where noted below) to the Index between Index
Reviews. Parent Index deletions will be reflected simultaneously.
EVENT TYPE

EVENT DETAILSNew additions to the Parent Index

A new security added to the parent index(such as IPO and other early inclusions)will not be added to the index.

Spin-Offs

All securities created as a result of thespin-off of an existing Index constituent
will be added to the Index at the time of
event implementation. Reevaluation forcontinued inclusion in the Index will occur
at the subsequent Index Review.

Merger/Acquisition

For Mergers and Acquisitions, theacquirer’s post event weight will accountfor the proportionate amount of shares
involved in deal consideration, while cash
proceeds will be invested across theIndex.
If an existing Index constituent is acquiredby a non-Index constituent, the existing© 2017 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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MSCI TOP 50 DIVIDEND INDEXES METHODOLOGY | NOVEMBER 2017

constituent will be deleted from the Index
and the acquiring non-constituent will not
be added to the Index.
Changes in Security Characteristics

A security will continue to be an Index
constituent if there are changes incharacteristics (country, sector, size
segment, etc.) Reevaluation for continued
inclusion in the Index will occur at thesubsequent Index Review.

Further detail and illustration regarding specific treatment of corporate events relevant tothis Index can be found in the MSCI Corporate Events Methodology book under the sections
detailing the treatment of events in Capped Weighted and Non-Market Capitalization
Weighted indexes.
The MSCI Corporate Events methodology book is available at:https://www.msci.com/index-methodology© 2017 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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MSCI TOP 50 DIVIDEND INDEXES METHODOLOGY | NOVEMBER 2017

The following sections have been modified since September 2016: The details on the Corporate Events treatment are now included in Section 3.4.
The following sections have been modified since June 2017: Section 2.1 was expanded to include information about dates for which fundamental
data is taken for index reviews.
The following sections have been modified since October 2017: Sections 2.1, 3.1 and 3.2 were expanded to include the additional constraint of the index
having a maximum of a single security per issuer.

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MSCI TOP 50 DIVIDEND INDEXES METHODOLOGY | NOVEMBER 2017CONTACT US
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