The S&P 500 is trading for just over 18.5x expected earnings. That’s not alarmingly high, but it’s higher than the 15x seen a year ago, prompting some talk that some corners of the market are getting pricey.
Due to defensive and quality traits, dividend growth stocks can carry valuations in excess of the broader market. That’s the price of admission for gaining access to the advantages of strategies such as the ProShares S&P 500 Aristocrats ETF (CBOE: NOBL).
NOBL 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.
Home to a dividend yield of that tops that of the S&P 500 and a price-to-earnings ratio of 19.77, NOBL doesn’t appear overly stretched on valuation compared to broader benchmarks. Plus, it has benefits plain vanilla strategies lack.
“One reason you might dedicate part of your portfolio to higher-yielding dividend stocks, especially those with very long track records for raising payouts, is that you would enjoy getting paid while waiting out a market decline,” reports MarketWatch. “Another might be that you are looking to earn income from your investments without having to draw down capital.”
Now For NOBL
With dividend growth coming off a solid year in 2019 and poised to tick higher this year, NOBL stands to benefit. Improving earnings growth could bolster dividend growth in 2020. Investors should consider quality dividend growth stocks that typically exhibit stable earnings, solid fundamentals, strong histories of profit and growth, commitment to shareholders, and management team convection in their businesses.
Dividend strategies can help mute the impact of volatility by giving investors a steady income stream in the event the markets do get bumpy as a result of unforeseen news events. Historical data confirm NOBL can be a winning idea for investors with longer holding periods, making the fund an ideal choice for young investors just starting out.
“The Dividend Aristocrats Index has trailed for one, three and five years, but that underperformance is modest compared with how much it has outperformed the benchmark for 10, 15 and 20 years,” according to MarketWatch.
Some of that underperformance is attributable to a lack of technology exposure, something that will change as more companies from that sector qualify for admission to NOBL. Investors can also augment with the tech-dedicated ProShares S&P Technology Dividend Aristocrats ETF (CBOE: TDV).
For more on core investing strategies, visit our Core ETF Channel.
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.