Income investors searching for for quality stock market exposure and sustainable dividends have plenty of options in the world of exchange traded funds. One of the most appealing is the ProShares S&P 500 Aristocrats ETF (BATS: NOBL).
NOBL, which tracks the S&P 500 Dividend Aristocrats Index, targets the cream of the crop, only selecting components that have increased their dividends for at least 25 consecutive years. Consequently, investors are left with a portfolio of high-quality, sustainable dividend payers as opposed to more high-yield focused funds that may contain companies on more precarious financial positions.
Dividend-paying stocks typically outperform those that do not pay over the long haul, with less volatility, due to the compounding effect of dividends on the investment’s overall return. Over the past 40 years, companies that boost payouts have proven to be less volatile than their counterparts that cut, suspended or did not initiate or raise dividends.
NOBL “attempts to track the performance of the S&P 500 Dividend Aristocrats Index. The Index has outperformed the S&P 500 because of its lower volatility since inception, but that’s not the case for the fund which hasn’t been around for as long. The actual index was around for the 2008/2009 market drawdown, so it was able to implement its more defensive strategy over the S&P 500. NOBL should also perform better if we see some market volatility that brings prices down to a reasonable level – instead of the insane valuation they are at now,” according to a Seeking Alpha analysis of NOBL.
NOBL has some dividend growth counterparts addressing other market caps and regions, including the ProShares Russell 2000 Dividend Growers ETF (BATS: SMDV), ProShares S&P MidCap 400 Dividend Aristocrats ETF (BATS: REGL) and the ProShares MSCI Emerging Markets Dividend Growers ETF (BATS: EMDV).
The ProShares Russell 2000 Dividend Growers ETF, a dividend spin on the Russell 2000, the benchmark U.S. small-cap index, tracks the Russell 2000 Dividend Growth Index. That index includes small-cap firms with dividend increase streaks of at least a decade. Index constituents are screened for liquidity and dividend status, then selected and equal weighted subject to a maximum sector weight of 30%.
Data indicate there is good reason to bet dividend growth stocks and the ETFs that hold those shares. 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.
For more information on dividend stocks, visit our dividend ETFs category.