Scores of data points and academic research support the notion that dividend growth is a major contributor to investors’ long-term outcomes. The ProShares S&P 500 Aristocrats ETF (CBOE: NOBL) is one of the premier ways for investors to efficiently access a basket of domestic large-cap stocks with enviable dividend growth tracks records.
NOBL tracks the S&P 500 Dividend Aristocrats Index, a benchmark that only includes companies that have boosted dividends for 25 consecutive years.
“Share price appreciation would have turned a $10,000 investment in the S&P 500 in 1960 into $460,095 by 2017. That’s a handsome 45-fold return. But add reinvested dividends to the picture, and the same investment would have blossomed to $2.57 million, more than five times as much,” according to Nasdaq.com.
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.
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. For the three years ended Jan. 29, 2019, including dividends reinvested, NOBL returned 44.30 percent compared to 35.50% without dividend reinvestment.
The Importance Of Dividends
“The relative contribution of dividends has varied dramatically over the years. Back in the stagnant 1970s, quarterly distributions accounted for a hefty 73% of the market’s return. But in the high-growth 1990s, they represented a much smaller 16%,” reports Nasdaq.com.
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.
“Between 1972 and 2017, dividend-paying stocks outpaced non-payers with average annual returns of 9.25% vs. 2.61% for the non-payers,” Nasdaq reports, citing a Ned Davis study.
That study “separated all dividend payers into distinct groups: those raising payouts over the previous twelve months, those cutting or eliminating payouts, and those maintaining payouts with no change.
No surprise, dividend-cutters performed worst, and dividend-maintainers did better. But dividend-growers delivered market-crushing gains of 10.07% annually. That’s about 230 basis points ahead of the S&P 500 — with less volatility,” according to Nasdaq.
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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.