Looking to A Timely Dividend Growth Strategy

The second quarter often brings a spate of dividend increases from major U.S. companies, a theme that can highlight the utility of dividend growth exchange traded funds, including the popular ProShares S&P 500 Aristocrats ETF (Cboe: NOBL).

NOBL, which 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 as opposed to more high-yield focused funds that may contain companies on more precarious financial positions.

Companies that have consistently increased dividends tend to be high in quality and show a strong potential for growth. These dividend growers have been able to withstand periods of market duress, exhibiting smaller drawdowns as investors sold off riskier assets, while still delivering strong returns on the upside, to generate improved risk-adjusted returns over the long haul.

“IHS Markit is forecasting that quarterly dividends declared by firms in the S&P 500 will top $115bn in the current calendar quarter, up 2.3% from $112.5bn declared in Q1. Of the 404 large-caps that announce quarterly payments, we expect 71 to increase their dividend payments over Q1 levels. We don’t foresee any dividend cuts in Q2, which would mark a second consecutive quarter of wholly positive actions,” according to the research firm.

The Time is Right for Dividend Growth

NOBL holds 53 stocks with a weighted average market value of $70.81 billion. Nearly 42% of the ETF’s combined weight is allocated to the consumer staples and industrial sectors, but some of NOBL’s other sector weights are levered to near-term dividend growth as well.

“At an industry level, Financials are expected to account for 23 of the increases worth $670m in aggregate,” said Markit. “However Q3 is the most significant quarter for dividends in this sector, after the Fed’s CCAR guidance. The next largest sector for dividend increases is Technology, with 10 firms expected to announce $658m worth of increases.”