Heading into 2019, some market observers forecast slower dividend growth for the S&P 500 than was seen last year, indicating dividend investors should focus on strategies and exchange traded fund that tap stocks with enviable histories of boosting payouts.
The ProShares S&P 500 Aristocrats ETF (CBOE: NOBL), which tracks the S&P 500 Dividend Aristocrats Index, is one ETF to consider. NOBL’s underlying index requires member firms to have minimum dividend increase streaks of 25 years.
“The S&P 500 Dividend Aristocrats is an index that focuses exclusively on a select group of high-quality companies within the S&P 500—those that have grown their dividends for at least 25 consecutive years,” according to ProShares.
While NOBL is just over five years, its underlying index is nearly three decades old and the benchmark has a history of performing less poorly than the S&P 500 when the broader market declines and when it outperforms, the S&P 500 Dividend Aristocrats Index usually does so with less volatility than the broader market.
What’s Next for Dividends?
Dividends are often viewed as a quality trait, but investors looking for credible combinations of dividends and the quality should assess factors beyond pure yield. Those factors include return on equity (ROE) and a company’s ability to sustain and grow payouts.
As S&P Dow Jones notes, over the long-term, dividend strategies top the S&P 500 on a total return and an absolute basis. Reinvesting dividends is also a vital part of the equation. Over the past three years, including dividends reinvested, NOBL returned 44.30 percent compared to 35.50% without dividend reinvestment.
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Consistent payouts also paid off as those that have consistently increased dividends exhibited higher returns and lower volatility, compared to their broad stock market benchmarks. Dividend payers have outperformed non payers and the broader market, producing a higher Sharpe ratio or improved risk-adjusted returns, with a lower standard deviation and greater performance relative to their benchmarks.
Over the past two years, NOBL has outperformed three of the four largest U.S. dividend ETFs. NOBL allocates about 45% of its combined weight to the consumer staples and industrial sectors. The materials and healthcare sectors combine for 23% of the fund’s weight.
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