Last year, some dividend stocks and the related exchange traded funds were hampered by rising Treasury yields. With bond yields retreating in 2019, dividend ETFs are rallying, but income investors can safely play that theme with dividend growth funds, such as the ProShares S&P 500 Aristocrats ETF (CBOE: NOBL).
NOBL tracks the S&P 500 Dividend Aristocrats Index, a benchmark that only includes companies that have boosted dividends for 25 consecutive years. The fund is up 9.22% this year.
“Dividend stocks should get a near-term boost from interest rates staying in a trading range, says Chris Senyek, chief investment strategist at Wolfe Research,” reports Lawrence C. Strauss for Barron’s.
NOBL has a 30-day SEC yield of 2.14%. 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.
What’s Next for Bond Yields
“On Monday the 10-year note was yielding 2.44%. Since the end of 2018 it has mostly traded between 2.4% and 2.7%,” according to Barron’s. “And the yield has dropped significantly since last November when it was north of 3.2%. Concerned about economic growth, many investors have poured into Treasuries. (Bond yields and prices move in opposite directions.)”
Lower bond yields can compel investors to embrace dividend stocks. 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.
NOBL can also weather potential spikes in Treasury yields because its allocations to rate-sensitive real estate and utilities stocks is low compared to some ETFs that emphasize dividend yield over growth.
“As for dividend investing strategies, Wolfe Research maintains that a smart investment strategy combines stocks with high dividend growth and high free cash flow yields,” according to Barron’s.
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