Despite the usual summer slowdown, dividend growth among U.S. companies is on pace for another banner year. Over the year ended June 2014, buyback and dividend expenditures combined reached a new record high of $865.9 billion, according to S&P Dow Jones Indices.
Although 61.6% of that $865.9 billion has been in the form of share repurchases, dividend growth remains sturdy and there is a good chance that some of that growth has come courtesy of the stocks that reside in the ProShares S&P 500 Aristocrats ETF (NYSEArca: NOBL).
NOBL tracks the S&P 500 Dividend Aristocrats Index, which only includes companies that have increased their dividends for at least 25 consecutive years. In other words, a company that fails to boost its payout will eventually be excluded from NOBL. [A Noble Dividend ETF]
NOBL is still a few weeks shy of its first anniversary, but the ETF’s rookie status and entry into the increasingly saturated market for dividend ETFs have not prevented it from becoming a quick success. With almost $221.1 million in assets under management at the end of the second quarter, it is apparent NOBL is one of the most successful ETFs to debut last year. Third-quarter inflows of $18.4 million cement NOBL’s growth trajectory. [New Dividend ETFs With Staying Power]
What makes NOBL an alluring option among dividend ETFs is that even though the ETF is home to plenty of mature, old line companies, as evidenced by the 25-year dividend increase streak requirement, the ETF sports a yield of less than 2%.
While that may not sound intoxicating in a low interest rate environment, it is worth noting that high yields can sometimes be a sign of company being strained by its dividend. Additionally, the relatively low yield on NOBL implies ample room for dividend growth, the very reason to consider the ETF, going forward.
The average payout ratio of NOBL’s top-10 holdings at the end of the second quarter was just 37.9%. That is above the 32.3% payout ratio seen on the S&P 500, but that is well below the benchmark U.S. index’s payout ratio of the 1980s and the early 1990s, indicating there is room for healthy dividend growth, which should benefit NOBL.
Bolstering the case for NOBL is that the S&P 500 Dividend Aristocrats Index has been less volatile than the S&P 500 while outperforming the benchmark index over the trailing three- and five-year periods, according to ProShares data.
NOBL charges 0.35% per year and is a new addition to the Schwab ETF OneSource commission-free exchange traded funds platform.
ProShares S&P 500 Aristocrats ETF
ETF Trends editorial team contributed to this post.