There are dividend exchange traded funds (ETFs) and there are ETFs dedicated to stock buybacks. Some ETFs combine the best of both worlds. For instance, the ProShares S&P 500 Aristocrats ETF (CBOE: NOBL) is framed as a dividend ETF and it is, but the fund also offers a buyback advantage.
NOBL tracks the S&P 500 Dividend Aristocrats Index, a benchmark that only includes companies that have boosted dividends for 25 consecutive years. Dividend growth strategies, including NOBL, often feature exposure to the quality factor and a recent analysis of NOBL’s underlying index confirms as much.
While dividends are often thought as useful long-term rewards for shareholders (they are), buybacks also reward investors over the long haul.
“We’ve seen a surge in both buyback value and the number of participating companies in recent years. In 2018, 444 of S&P 500® companies spent USD 806 billion on buybacks,” said S&P Dow Jones Indices in a recent note. “Additionally, more dividend-growing companies have begun repurchasing shares while consistently increasing dividend distribution.”
The Biggest Dividend ETFs By AUM
|Symbol||ETF Name||Expense Ratio||Total Assets ($MM)||YTD||Avg Volume|
|VTI||Vanguard Total Stock Market ETF||0.04%||$113,264.41||18.00%||2,895,209|
|VIG||Vanguard Dividend Appreciation ETF||0.08%||$33,668.62||15.70%||901,289|
|VYM||Vanguard High Dividend Yield ETF||0.06%||$23,643.97||13.76%||1,046,649|
|SDY||SPDR S&P Dividend ETF||0.35%||$18,631.09||13.75%||723,011|
|DVY||iShares Select Dividend ETF||0.39%||$17,395.89||13.77%||707,156|
|VT||Vanguard Total World Stock ETF||0.09%||$12,864.63||16.00%||2,668,173|
|SCHD||Schwab US Dividend Equity ETF||0.06%||$9,481.51||17.02%||985,062|
|HDV||iShares Core High Dividend ETF||0.08%||$7,126.58||13.94%||624,849|
|DGRO||iShares Core Dividend Growth ETF||0.08%||$6,897.45||14.71%||1,438,846|
|EFV||iShares MSCI EAFE Value ETF||0.38%||$6,090.07||11.46%||776,183|
|FVD||First Trust Value Line Dividend Index||0.70%||$5,735.06||14.16%||912,602|
|PRF||Invesco FTSE RAFI US 1000 ETF||0.39%||$5,538.10||16.07%||120,260|
|FNDX||Schwab Fundamental U.S. Large Company Index ETF||0.25%||$4,927.09||16.19%||354,337|
|NOBL||ProShares S&P 500 Aristocrats||0.35%||$4,623.51||13.95%||655,832|
|IDV||iShares International Select Dividend ETF||0.5%||$4,408.37||11.11%||600,943|
This is a list of all Dividend ETFs traded in the USA which are currently tagged by ETF Database. * Assets and Average Volume as of 2019-04-23 20:15 UTC
Where Buybacks And Dividends Meet
Data indicate that members of the S&P 500 Dividend Aristocrats, NOBL’s underlying index, have been boosting dividends and buybacks. The use of share repurchase programs is particularly useful for dividend-paying companies because as the repurchased shares are retired, the companies’ dividend expenses decline, potentially freeing up more cash for dividend hikes down the road.
“Choosing between dividends and share repurchases is a contentious debate,” said S&P Dow Jones. “Income-oriented investors may prefer dividends, while growth-oriented investors may desire the capital appreciation that buybacks bring. Although either payout strategy can benefit investors over time, an alternative and holistic strategy would be to integrate the two.”
Investors looking to pair dividend and buyback strategies can consider using NOBL with the SPDR S&P 500 Buyback ETF (NYSEArca: SPYB).
SPYB focuses on S&P 500 companies with the highest buyback ratio in the past 12 months. The fund tracks the S&P 500 Buyback Index and is home to 100 stocks. That index “screens securities based on the cash value of the actual buyback, not the reduction in number of shares outstanding, in order to more fully capture the shareholder value created by increasing share repurchases,” according to State Street.
Overlap between NOBL’s and SPYB’s indexes is low.
“However, we find that overlap between the two indices is fairly low—6.4% on average when measuring on a quarterly basis from December 1998 to December 2018. The combined strategy does indeed display the highest risk-adjusted return over the long-term investment horizon, indicating that investors could benefit from integrating both factors,” according to S&P Dow Jones.
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