With the value and dividend styles back in play this year, a dividend “aristocrats” exchange traded fund strategy has been among the better performers, providing exposure to companies with a history of sustainable yields.
The ProShares S&P 500 Aristocrats ETF (NYSEArca: NOBL) has increased 14.4% year-to-date, compared to the S&P 500 Index’s 7.1 gain. The fund has grown to $2.3 billion in net assets under management after attracting over $1 billion in net inflows so far this year, according to ETF.com. Additionally, NOBL comes with a 1.82% 12-month yield.
The dividend ETF has also generated an impressive track record, producing an annualized total return of 12.4% since its October 2013 inception through May 2016, writes Morningstar Director of Global ETF Research, Ben Johnson. The underlying S&P 500 Dividend Aristocrats Index has also generated a 10.6% annualized return over the past 10-year period.
Supporting its stable and impressive long-term performance, NOBL targets an exclusive club of S&P 500 companies. The underlying index only includes companies that have increased their dividends for at least 25 consecutive years. Additionally, the benchmark includes some diversification qualities, like holding at least 40 components and weighting no single sector more than 30% of its value. However, to meet these requirements, the underlying index may allow for inclusion stocks that have increased annual dividends for just 20 years.
“The index’s dividend screen yields a portfolio of high-quality stocks,” Johnson said.[related_stories]
Moreover, NOBL’s underlying index includes a quarterly rebalancing scheme that equally weights components.
“The quarterly reweighting feature will add a bit of value into the mix (by way of regularly upping allocations to stocks that have performed relatively poorly) and may throttle momentum (paring back allocations to names that have performed relatively well),” Johnson added.
However, Johnson pointed out that NOBL is a little more pricey, compared to its competitors. NOBL comes with a 0.35% expense ratio, the average cost for other exchange traded products in the large-value, -blend and -growth Morningstar categories.
However, it is more expensive than something like the Vanguard Dividend Appreciation ETF (NYSEArca: VIG), which tracks U.S. stocks that have increased dividends on a regular basis for at least 10 consecutive years and comes with a 0.09% expense ratio. The Schwab US Dividend Equity ETF (NYSEArca: SCHD), which includes 100 stocks based on strong fundamentals, dividend yields and consistent dividend payouts for at least 10 consecutive year, has an even cheaper 0.07% expense ratio.
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