Low-interest rates often buoy the case for high dividend strategies, but dividend growth funds, including the ProShares S&P 500 Aristocrats ETF (CBOE: NOBL), are winning, too. NOBL is up 2.67% this week and 4.40% over the past month.
The ProShares fund 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.
Although NOBL yields around 2%, emphasizing quality and durable dividend growth can serve investors across any market environment.
“Funds focused on stocks with growing dividends have trumped those emphasizing higher yields so far this year, results that reflect two big market trends: a love for tech stocks and a relative aversion to value stocks,” reports Lawrence Strauss for Barron’s.
NOBL Emphasizes Quality
NOBL’s emphasis on quality has helped the ETF perform less poorly and display less volatility than broader benchmarks when stocks swoon. Additionally, the fund’s focus on dividend growth over yields avoids companies that are financially burdened by their payouts, many of which reside in the high dividend category.
Quality should not be conflated with low volatility, but there are times when quality stocks display low volatility traits. That was the case during the fourth quarter of last year market swoon, indicating that the quality factor can provide some protection during times of elevated market stress.
“The outperformance of dividend growth funds is also part of a broader trend that has seen growth fare much better than value. If a stock has a high yield, it can signal underperformance and fall into the value category,” according to Barron’s.
High dividend strategies are also defensive, even more so than dividend growth funds, meaning investors can miss some of the market’s upside when chasing yield. For example, NOBL is beating the high-yield Dow Jones U.S. Select Dividend Index by more than 500 basis points this year.
“In 2019 at least, investors in that fund are getting a better yield but with less capital appreciation compared to dividend portfolios with more of a growth bent,” notes Barron’s.
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