Dividend stocks are coming back to into focus – thank low interest rates for that – but investors should still prioritize quality growth, which is accessible with the ProShares S&P 500 Aristocrats ETF (CBOE: NOBL).
NOBL tracks the S&P 500 Dividend Aristocrats Index and 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.
The asset is an ideal exchange traded fund for investors to consider today because the worst of the payout downside wrought by the coronavirus pandemic may be in the rearview mirror.
“When the pandemic began, investors feared cuts en masse to dividends because of the many businesses forced to close or drastically alter operations. Thankfully, that worst-case scenario didn’t materialize for dividend-focused investors,” according to ProShares research. “While there were many companies that cut or suspended their dividends, the damage was largely confined to the early stages of the pandemic. Once the economy began to stabilize, so seemingly did dividends. By the end of 2020, approximately three times as many companies in the S&P 500 raised their dividends as cut them.”
Putting Dividends on a Pedestal
Dividends are in demand as fixed income investors face a lower-for-longer interest rate environment. The Federal Reserve is expected to maintain its near-zero interest rate policy to help push inflation up, bolster the economy, and lower the unemployment rate. The Fed has already stated it is willing to let inflation run higher to offset years inflation fell below its 2% target.
As for why NOBL remains relevant today, sheer performance gaps between dividend growers and offenders paints that picture.
“This distinction in dividend policy had a significant impact on performance. Across the market-cap spectrum, there was a performance spread of approximately 20% between dividend growers and dividend cutters. This dynamic also had important performance impacts on dividend investing strategies,” notes ProShares.
Dividend-paying stocks can also help insulate investors from a broad market pullback. That’s particularly true of this model portfolio’s components, which, by virtue of their quality traits, tend to display less volatility in rough markets.
Dividend growth is also meaningful today because payout growers typically weather rising rates. That’s something to consider with Treasury yields climbing.
“A rather obvious place to look for sustainable and increasing income is dividend growth strategies. While dividends for the broad-market indexes were flat or down, S&P Dividend Aristocrat strategies delivered robust rates of dividend growth,” concludes ProShares.
For more on income strategies, visit our Retirement Income 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.