Moreover, Ervin pointed out that the DIVCON indexing methodology has outperformed other popular dividend growth strategies. Specifically, the Reality Shares DIVCON Leaders Dividend Index has generated a 9.4% 10-year annualized return, compared to the 8.0% return of the NASDAQ U.S. Dividend Achievers Select Index and 7.7% for the S&P 500. The Nasdaq U.S. dividend Achievers Select Index is the underlying benchmark for the popular 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.
Additionally, DFND takes the long position in the dividend leaders while shorting the dividend laggards in a kind of 75/25, long/short strategy to help provide greater stability. Meanwhile, GARD goes long dividend leaders and includes a dynamic hedge on the dividend laggards to diminish the negative effects of potential downturns.
The underlying index also employs a type of smart-beta strategy, focusing on seven quality factors including earnings, cash flow, dividend history, buybacks, growth, analyst forecasts and ratings to predict future dividend growth.
SEE MORE: A Forward Looking Dividend ETF Strategy
The DIVCON dividend scoring system is also a forward looking mechanism, as opposed to other dividend index funds that target company stocks based on trailing yields.
“The power of the DIVCON model is the ability to distinguish higher quality companies from lower quality companies,” according to Reality Shares.
For more information on dividend stocks, visit our dividend ETFs category.