Investors love dividends, but what is even better is a company with a long-standing commitment to boosting its payout.

Savvy income investors know the advantages of stocks that raise payouts in “set your clock by it” fashion. From 1972 through 2012 companies that initiated or consistently raised dividends outperformed and were less volatile than the companies either did not pay, cut or kept dividends stagnant, according to Ned Davis Research. [Dividend Growth Via ETFs]

Consistent dividend raisers are found in the various S&P Dividend Aristocrats indexes, including the S&P High Yield Dividend Aristocrats Index. The S&P High Yield Dividend Aristocrats Index is underlying benchmark for the SPDR S&P Dividend ETF (NYSEArca: SDY), one of the four largest U.S. dividend ETFs.

The $13.5 billion SDY holds firms that have a minimum dividend increase streak of 20 years, which is great, but does not completely insulate investors from risk.

“Still, there is no guarantee that they will continue to increase dividends in the future. At the start of 2008, right before the financial crisis, the fund had 38% of its assets in the financial sector, more than twice that of the S&P 500,” said Morningstar analyst Michael Rawson of SDY in a recent research note. “Several of its largest holdings, such as Comerica, cut their dividends in 2008 and saw their stock prices crater before this fund reconstituted its holdings.”

Dividend cutters or those firms that do not keep alive dividend increase streaks get booted from SDY when the ETF rebalances.

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