After being a star among investment factors last year, quality is making investors again take note in 2019. In fact, various quality strategies notched impressive February performances, including some dividend growth ETFs.
The ProShares S&P 500 Aristocrats ETF (CBOE: NOBL) tracks the S&P 500 Dividend Aristocrats Index, a benchmark that only includes companies that have boosted dividends for 25 consecutive years. NOBL entered the last trading day of February with a month-to-date gain of more than 7%.
While NOBL is just over five years, its underlying index went live on May 2, 2005, 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. Investors can lean on that history if economic growth slows this year or equity market volatility increases.
NOBL ETF Stands Tall
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.
NOBL is up 10.51% year-to-date, making it one of the better-performing domestic dividend strategies to this point in 2019. In part, NOBL is benefiting from a resurgence in industrial stocks. That sector, one of this year’s leading groups, is NOBL’s largest sector weight at 23.42%. Consumer staples is NOBL’s second-largest sector allocation at 22%.
There are some macro issues that could pop up that underscore the utility of quality dividend growers going forward this year.
“So here’s my one concern: margins are now higher than their pre-crisis peak,” said Hyman. “And we’re having the back end of the tax cut. In other words, the corporate tax cuts are going to go the consumer in the form of price. So there’s a little bit of margin pressure that may start to emerge, perhaps as early as the second half.”
Quality stocks with track records of dividend growth can help investors mitigate some of the impact of increasing margin pressure, should that scenario emerge.
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