When investors think about the world of exchange-traded funds (ETFs) what typically comes to mind is index-tracking and growth investing. However, ETFs come in all shapes and sizes and there are an assortment that offer income by owning dividend-paying stocks.
With dividend-paying stocks in an ETF portfolio, fund managers collect the regular dividend payments and then distribute them to the ETF shareholders. These dividends can be distributed in two ways, at the discretion of the fund’s management, as cash paid to the investors, or in the form of reinvestments into the ETFs’ underlying investments. While there is an assortment of dividend-paying ETFs to choose from, one standout option is the Dividend Aristocrat’s ETF (NOBL) from Proshares.
ProShares’ S&P 500® Dividend Aristocrats ETF seeks investment results, before fees and expenses, that track the performance of the S&P 500 Dividend Aristocrats Index. It is the only ETF that currently does this. NOBL is the only ETF that focuses exclusively on companies in the S&P 500 that have grown dividends for at least 25 consecutive years. NOBL’s index, the S&P 500 Dividend Aristocrats, has outperformed the S&P 500 with lower volatility since its inception. NOBL is part of the largest suite of ETFs focused on dividend growers, covering U.S. and international markets.
Dividend-paying stocks usually get flogged in a rising rate environment, making them ideal for a lower rate environment like the economy is currently experiencing. That justification for their preference for lower interest rate conditions is that as rates on fixed income securities rise, they become more attractive to income-seeking investors than the more volatile common stocks of dividend-paying companies. So understandably, investors shun their dividend-paying stocks in favor of bonds that not only provide more anchored prices, but are also ranked as a higher priority within a company’s capital structure.
Most analysts are aware of the key interplay between stock market gains and low interest rates.
“It’s been a night-and-day difference, the outlook for stocks going from December into the first quarter this year,” said Chris Rupkey, chief financial economist at MUFG Union Bank in New York. “And I think you could say that Federal Reserve policy was very important in underpinning the stock market rally.”
And with Fed Chairman Powell stating recently that the central bank will “act as appropriate to sustain the expansion,” now might be an opportune time for dividend paying stocks like NOBL to shine.
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