S&P 500 earnings growth is expected to notch a 9.6% increase next with five sectors – energy, industrials, materials, consumer discretionary and communication services – expected to post double-digit growth, according to FactSet.

However, if earnings growth slows more than market observers currently expect, investors ought to consider gaining some protection and income with dividend growth ETFs, such as the ProShares S&P 500 Aristocrats ETF (CBOE: NOBL).

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. Up about 25% year-to-date, NOBL merits near-term consideration as well.

“As of November 15, the estimated earnings decline for Q3 2019 as compared with the same period in 2018 currently stands at just over 2%,” said Kieran Kirwan, Senior Investment Strategist at ProShares, in a post for S&P Dow Jones Indices. “If that turns out to be the case, when all is said and done, it would mark the third consecutive quarterly decline. Soon enough, investors will begin to ask the question of where the earnings are going to come from to support current valuations.”

Over The Long Haul, Dividends Matter

Improving earnings growth could bolster dividend growth in 2020. Investors should consider quality dividend growth stocks that typically exhibit stable earnings, solid fundamentals, strong histories of profit and growth, commitment to shareholders, and management team convection in their businesses. NOBL also offers other benefits for long-term investors.

“In a market susceptible to fits and starts, investors remain understandably attracted to dividend strategies,” said Kirwan. “Beyond the obvious appeal of a potential income stream during a time of low fixed-income yields, dividends have historically provided a sizeable slice of total-returns pie. In fact, dividends have accounted for roughly one-third of S&P 500 Total Return Index performance going back to 1960.”

Another benefit of NOBL in a slower earnings growth environment is that dividend growth companies typically offer steadier, more predictable earnings streams.

“In particular, investors might want to look into the S&P 500 Dividend Aristocrats—high-quality companies that have not just paid dividends but grown them for at least 25 consecutive years,” notes Kirwan. “In fact, the Aristocrats delivered positive, if moderate, earnings growth during the first two quarters of 2019. Over time, companies that have grown their dividends like this generally have had stable earnings and solid fundamentals.”

For more on core investing strategies, visit our Core ETF Channel.

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.

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