Dividends are often view a quality trait, but investors looking for credible combinations of dividends and the quality should assess factors beyond pure yield. Those factors include return on equity (ROE) and a company’s ability to sustain and grow payouts.
Some dividend growth exchange traded funds (ETFs), such as the ProShares S&P 500 Aristocrats ETF (CBOE: NOBL), which tracks the S&P 500 Dividend Aristocrats Index, have elements of quality. NOBL’s underlying index requires member firms to have minimum dividend increase streaks of 25 years.
“Dividend strategies come with various investment objectives and target different characteristics. For example, some aim to achieve absolute dividend yields, while others may target steady dividend growth rates or combine other fundamentals such as quality or low volatility with yield,” said S&P Dow Jones Indices in a recent note.
As S&P Dow Jones notes, over the long-term, dividend strategies top the S&P 500 on a total return and an absolute basis. During a rough fourth quarter for stocks, NOBL proved its worth.
NOBL’s fourth-quarter performance indicates the ETF did outperform the S&P 500 as the broader market tumbled. From October 1, 2018 through November 23, 2018, NOBL fell 4.38%, meaning it outperformed the S&P 500 by 500 basis points over that period, according to ProShares data.
Combining Quality
Historical data suggest combining quality and dividends, which some dividend growth strategies do, can be rewarding for investors.