Though they’re not perfect, some dividend ETFs provide investors with some protection during market drawdowns. History shows the ProShares S&P 500 Aristocrats ETF (CBOE: NOBL) is adept at that.
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.
NOBL’s strict requirement for admission – the 25-year increase streak – is particularly useful at a time when some sectors are becoming hotbeds for negative dividend action. Those groups include consumer discretionary and energy.
To this point in 2020, a dozen S&P 500 member firms have cut or suspended payouts.
“Those that have announced dividend cuts: Apache (APA), Occidental Petroleum (OXY), SL Green Realty (SLG), and Old Dominion Freight Line (ODFL),” reports Lawrence Strauss for Barron’s. “S&P 500 companies suspending their dividends are Boeing (BA), Darden Restaurants (DRI), Delta Airlines (DAL), Ford Motor (F), Freeport-McMoRan (FCX), Marriott International (MAR), Macy’s (M), and Nordstrom (JWN).”
NOBL Avoids Bad News
Home to 64 stocks, NOBL allocates just 6.70% of its combined weight to real estate and energy stocks. None of the aforementioned names from those sectors are among the ETF’s holdings. In fact, none of NOBL’s have been dividend offenders this year.
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. NOBL is built for long-term investors and data following market tumbles confirms as much.
NOBL’s holdings are equally weighted with none exceeding weights of 1.94% at the end of 2019, meaning that even if one of its components becomes a dividend offender and the stock subsequently sells off, the fund should be relatively immune from a big decline.
The aforementioned Barron’s article references Goldman Sachs research that screened Russell 1000 stocks with high yields and secure payouts, a search turned up 40 names. That group includes at least seven NOBL holdings, such as Dow components Caterpillar (NYSE: CAT), Johnson & Johnson (NYSE: JNJ) and 3M (NYSE: MMM).
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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.