Are Dividends Payers Royalty or the Top Dog?

Given the recent market volatility, dividends are important to equity investors even though they are increasingly plentiful. Indeed, approximately 400 constituents within the S&P 500 currently paid a dividend at the end of September 2023, while over 600 of the S&P Mid-Cap 400 and S&P Small-Cap 600 index companies do so.  

However, a select group of companies have long records of growing this dividend annually for decades. There were 121 companies in the S&P 1500 Index that have a 25-plus year run of dividend increases. These companies form the S&P High Yield Dividend Aristocrats Index, which is tracked by the SPDR S&P Dividend ETF (SDY). 

A New Dividends ETF Ascends 

A more selective group of 36 companies has boosted their dividends for 50 consecutive years (I’m 48 years old, thanks for asking). The stocks of these companies form the S&P Dividend Monarchs Index, which is tracked by the Roundhill S&P Dividend Monarchs ETF (KNGS). While SDY has $19 billion and a nearly 18-year record, KNGS launched last week.  

While consistent dividend growth is more common among the large-caps, the smallest of the companies with five decades of unbroken dividend growth had a market capitalization of $1.7 billion at the end of October. 

A long record of dividend growth is a sign of quality offering strong reward potential with some risk mitigation. The S&P Dividend Aristocrats Index and the S&P Dividend Monarchs Index both have lower five-year standard deviations than the parent S&P 1500 index and a beta around 0.8. 

What Dividends Growth ETFs Own 

SDY’s largest sectors at the end of October were industrials (22% of assets), consumer staples (20%), financials (12%), utilities (11%), and materials (10%). 3M, Consolidated Edison, Kimberly-Clark, Southern Co, and T.Rowe Price were among the top 10 positions. 

KNGS’ largest sectors were consumer staples (25%), industrials (20%), utilities (16%), healthcare (12%), and materials (11%). KNGS had much less exposure than SDY in financials (2.3%) and had no energy or information technology stocks, unlike its dividend growth peer. 

Black Hills, Federal Realty Investment Trust, Leggett & Platt, and National Fuel Gas were among the top 10 positions with a 4% weighting. These stocks are also inside SDY, but the weights were less than 1%.  

While SDY and KNGS are focused on dividend growth, there are other dividend ETFs constructed based on dividend yield. 

A High Dividend Yield Matters to Some  

For example, the ALPS Sector Dividend Dogs ETF (SDOG) equally weights five highest-yielding stocks in 10 sectors from a large-cap index of 500 companies. Relative to SDY and KNGS, SDOG has more exposure to communications services and energy, with 10% stakes in each.  

Meanwhile, the fund also has 10% in consumer staples and industrials, less than KNGS and SDY. AT&T, Snap-On, ONEOK, Verizon Communications, and Williams Companies are some of SDOG’s larger holdings. 

Another high dividend ETF is the Global X SuperDividend US ETF (DIV). The fund also owns 50 stocks but is not equally weighted at the sector level. As such, energy is the largest at 21%, while consumer discretionary is just 1.2%. Top positions include Global Net Lease, Holly Energy Partners, and USA Compression.  

KNGS and SDY have net expense ratios of 0.35%, while the fees for SDOG and DIV’s fees are 0.36% and 0.45%, respectively. But the differences about what dividend payers can be inside an ETF matter more than the cost to an ETF’s future performance.  

VettaFi expects to be talking dividend ETFs on CNBC’s Halftime Report and ETF Edge Monday afternoon.     

For more news, information, and analysis, visit VettaFi | ETF Trends.