The ProShares S&P 500 Aristocrats ETF (NYSEArca: NOBL) is off just 1.5% year-to-date, a performance that is impressive relative to some other big-name dividend exchange traded funds. That could be a sign the time is right NOBL and its dividend consistency strategy, which only includes companies that have increased their dividends for at least 25 consecutive years.
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%. That implies ample room for dividend growth by the ETF’s roughly 50 holdings.
The importance of dividend growth as a driver of a portfolio’s total returns cannot be understated. 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.
“Volatility and market declines are nearly impossible to avoid, but strategic investors are turning to high-quality dividend paying stocks known as the dividend aristocrats to preserve their capital and provide for potential upside. The strong chart of the ProShares S&P 500 Dividend Aristocrats ETF and its top holding Hormel Foods suggest that opportunities are available and that 2016 could be a good year for those willing to be selective and take risk,” notes Investopedia.
In addition to light exposure to rate-sensitive sectors, such as utilities, NOBL features a large combined weight to the industrial, materials, financial services and energy sectors, each of which outperformed the S&P 500 during the Fed’s last tightening cycle from 2004 to 2006. [Fighting Rate Hikes With Dividend Growth ETFs]
Dividend stocks and ETFs may also enjoy dividend growth, along with capital appreciation, which could also help an investor maintain his or her nest egg longer. Consequently, with a larger portion of retirement money invested in dividend stocks, an investor would not be forced to withdraw, or sell off assets, from his or her portfolio as quickly to meet annual income needs, assuming if total yields fall short of the target 4% withdrawal rate. [ETF Options to Generate Income for Retirement]
ProShares S&P 500 Aristocrats ETF
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.