Retiring Like Nobility? Consider This 'Aristocrats' ETF

There were some bumps in the road last year, but dividend growth is returning, highlighting the benefits of exchange traded funds like 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.

“When the pandemic began, many investors feared widespread dividend cuts,” according to S&P Dow Jones Indices. “However, while some companies did cut or suspended their dividends, the damage was largely confined to the pandemic’s early stages. Once the economy began to stabilize, so did dividends. By the end of 2020, approximately three times as many companies in the S&P 500 raised their dividends as cut them.”

Last year’s dividend cutting and the recent return of dividend growth underscore the allure of NOBL today.

NOBL 1 Year Total Return

When Reliability Matters, Tap ‘NOBL’

Dividend growth is also meaningful today because payout growers typically weather rising rates. That’s something to consider with Treasury yields climbing.

“Across the market-cap spectrum, dividend growers outperformed dividend cutters by approximately 20%. Dividend strategies focused on high yield (represented by the Dow Jones U.S. Select Dividend Index) held proportionately more dividend cutters and saw their performance struggle. Dividend growth strategies (represented by the S&P 500 Dividend Aristocrats Index) fared much better,” notes S&P Dow Jones.

Importantly, and highly relevant today, NOBL is not a high dividend strategy. When sorting by dividend yield, companies in the highest quintile of dividend yield – those whose ability to pay may become stretched in challenging markets – account for more than double the number of dividend cuts and eliminations versus those in the bottom quintile with more modest dividend yields

“One 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,” finishes S&P Dow Jones.

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.