The recent decline in 10-year Treasury yields took those yields below the dividend yield on the S&P 500, a scenario that could bode well for dividend stocks, including those with traditions of consistently boosting payouts.
Enter the ProShares S&P 500 Aristocrats ETF (CBOE: NOBL). NOBL is up 2% this month and has a dividend yield of 2.21%.
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.
Companies that have consistently increased dividends tend to be high in quality and show a strong potential for growth. These dividend growers have been able to withstand periods of market duress, exhibiting smaller drawdowns as investors sold off riskier assets, while still delivering strong returns on the upside, to generate improved risk-adjusted returns over the long haul.
“According to Dennis DeBusschere, an Evercore ISI strategist, the time for stock-market investors to reassess their holdings is now,” reports Business Insider. “That’s because the big move lower in the 10-year yield last month pushed it below the S&P 500’s dividend yield for the first time since late 2016, he said. According to FactSet, 44% of S&P 500 companies are now trading with dividend yields greater than the US 10-year Treasury, revealing a juicy opportunity for those willing to bear the risk.”
Now’s The Time For NOBL
Companies that have consistently increased dividends tend to be high in quality and show a strong potential for growth. These dividend growers have been able to withstand periods of market duress, exhibiting smaller drawdowns as investors sold off riskier assets, while still delivering strong returns on the upside, to generate improved risk-adjusted returns over the long haul.
“As odds of a Fed rate cut in July move higher (~80% today), the attractiveness of dividend paying stocks has increased,” DeBusschere told Business Insider. “This suggests that if the trend continues, a sustainable dividend-growth strategy will outperform a basket of government-backed debt.”
Company stocks that issue high dividend yields can be masking their distressed books or may not be sustainable and are heading for dividend cuts. Quality dividend ETFs, such as NOBL, try to limit the impact of these value traps by requiring a history of sustainable dividend growth.
“With US government debt essentially yielding peanuts on an inflation-adjusted basis, starved-for-yield investors will continue to search all corners of the market for a viable return. It may be time to reassess the genesis of your income-producing assets,” according to Business Insider.
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