Dividend ETFs, including the ProShares S&P 500 Aristocrats ETF (CBOE: NOBL), are performing well in 2019 and the these funds could have more tailwinds as the year moves along.

Up more than 12% year-to-date, NOBL is benefiting from investors gravitating toward the quality factor, but expectations of record dividend growth in the U.S. this year could power NOBL and other dividend growth funds.

“S&P 500 dividend payments are expected to set another record this year and increase by 8-9%, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices,” reports Lawrence C. Strauss for Barron’s.

NOBL tracks the S&P 500 Dividend Aristocrats Index, a benchmark that only includes companies that have boosted dividends for 25 consecutive years. Dividend growth strategies, including NOBL, often feature exposure to the quality factor and a recent analysis of NOBL’s underlying index confirms as much.

Outpacing Inflation

“While that would be a very healthy increase that easily outstrips inflation, it would also be a a bit less than last year’s 9.84% overall dividend hike for companies in the S&P 500. Still, it’s encouraging news given that bond yields have leveled off and even fallen in some cases,” according to Barron’s.

Additionally, dividend-paying stocks typically outperform those that do not pay over the long haul, with less volatility, due to the compounding effect of dividends on the investment’s overall return. Dividend growers have also proven to be effective ways of protecting portfolios against the effects of inflation.

Companies with a record of raising dividends are more attractive than usual since they issue their dividends cautiously. These dividend payers typically include higher quality companies that are more cautious when raising dividends since they would do so without stretching their balance sheets. Those traits bolster the case for a fund like NOBL.

“Meanwhile, in this year’s first quarter, U.S. common dividends increased by $11.8 billion, down from an $18.8 billion jump a year earlier,” notes Barron’s. “A year ago, the impact of new federal tax law, which lowered the corporate tax rate from 35% to 21%, was starting to kick in. But that impact on dividend activity has faded somewhat.”

NOLB has a dividend yield of 2.15%.

For more on core investing strategies, please 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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