In what’s proving to be a rough year for dividend investors, dividend aristocrats are standing firm, underscoring the advantages of ETFs, such as the ProShares S&P 500 Aristocrats ETF (CBOE: NOBL).
NOBL 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.
Rampant dividend cutting against the backdrop of the coronavirus makes it difficult for many investors to remember that dividend stocks usually less volatile and often outperform their non-dividend counterparts in turbulent environments. NOBL also offers benefits relative to high dividend funds, many of which feature exposure to financially strained companies.
“The S&P 500® Dividend Aristocrats® is an index comprising companies in the S&P 500 that have increased their annual cash payments for at least 25 years in a row,” said S&P Dow Jones Indices senior index analyst Howard Silverblatt in a recent note. “Dividends are a part of their culture and public appeal (income), as they broadly highlight their increases. In general, their increases are smaller but still constant, and even in bearish markets, these companies have continued to increase.”
Now’s Good for NOBL
For long-term investors, particularly those with a time frame that can indulge reinvesting dividends, payout growth can have a substantial, positive impact on total returns, underscoring the point that dividend growth matters.
Many of NOBL’s components carry investment-grade credit ratings, another important factor for dividend investors to consider.
“As of July 19, 2020, there were 65 issues in the S&P 500 Dividend Aristocrats, including the spun-off issues of Carrier and Otis (from United Technologies, which is now Raytheon) and after the removal of Ross Stores,” according to Silverblatt. “Of the 65, 33 have already increased dividends, and both spin-offs have started to pay them. One issue, Ross Stores, suspended its dividend and was therefore removed before the market opening of July 1, 2020.”
Energy and real estate are two of the worst dividend offending sectors this year, but NOBL allocates just over 7% of its weight to those groups. Fortunately, the fund’s energy holdings haven’t been dividend cutters, at least not yet. Rather, Exxon and Chevron merely appear unlikely to boost payouts this year.
“The bottom line for the Dividend Aristocrats appears to be that they will pay through Q3 2020, and absent a downturn (cash flow), they will also pay through Q4 2020,” notes Silverblatt. “The number of increases may drop (use of the “bye”), and increases may be smaller than usual (with increases of one penny being the new wink). However, a small increase in their dividends would be preferable to those 62 issues in the S&P 500 that have cut since mid-March 2020.”
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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.