“Dividend aristocrats” is the name that S&P Dow Jones uses for its indexes of companies that have extremely long records of dividend growth. The appeal of these strategies is one of quality growth because companies that have historically boosted their cash payouts are likely to continue to do so, but only if they have consistent cash flow to support returning money to shareholders.
Demand for dividend ETFs accelerated in 2022 as advisors and end clients sought out the relatively stable income generation with the opportunity for some upside amid a rising rate environment. A couple of the more popular products are set to welcome new constituents this week, while one is also saying goodbye to a few.
Two ETFs tied to the S&P Dividend Aristocrats series are reconstituted annually and set to change on February 1. The ProShares S&P 500 Dividend Aristocrats ETF (NOBL) tracks an index of S&P 500 constituents that have raised their dividends for 25 consecutive years. The current fund is overweight relative to the S&P 500 Index to industrials (21% of assets vs. 8%) and consumer staples (21% vs. 7%), while underweight toward information technology (3% vs. 27%).
However, two industrial sector companies — CH Robinson Worldwide (CHRW) and Nordson (NDSN) — are set to join 3M (MMM) and Illinois Tool Works (ITW), while consumer staple J. M. Smucker (SJM) is set to be added next to Clorox and PepsiCo within NOBL.
NOBL pulled in $1.9 billion of new money in 2022 and declined only 6.5%, holding up much better than the 18% loss for the S&P 500 Index.
While NOBL is only adding three stocks, dividend peer SPDR S&P Dividend ETF (SDY) is adding seven companies but also dropping three. SDY tracks a multi-cap index where companies need to be members of the S&P 1500 index and have raised their dividends for 20 consecutive years.
SDY will be selling Embecta, Middlesex Water, and Telephone & Data Systems, while adding in some large-caps like Lockheed Martin and Microchip Technology as well as some smaller-caps like Avista and Flowers Foods.
Prior to the reconstitution, SDY’s largest sector weights were in industrials (18% of assets), financials (16%), and consumer staples (15%), with just a 3% weighting to information technology. SDY gathered $3.2 billion in net inflows in 2022, while declining in value just 0.5%.
Unlike the market cap-weighted S&P 500 or S&P 1500 Indexes, smart beta products tied to broad market benchmarks make changes on a set schedule. The adjustments to the dividend lineup are to be more muted than what occurred in December for the growth- and value-style indexes behind popular ETFs. However, it is worth it for advisors to stay on top of what is inside these funds because while the indexes behind many ETFs are passively managed, your efforts to support clients are active.
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