Investors often turn to dividend stocks and exchange traded funds as avenues for reducing portfolio volatility, particular when broader market turbulence rises, but as 2018 proved, not all dividend-oriented strategies deliver the desired outcome of reduced volatility.
Against the backdrop of four interest rate hikes by the Federal Reserve last year, some high dividend funds languished. However, some dividend growth funds performed less poorly than the S&P 500. The ProShares S&P 500 Aristocrats ETF (CBOE: NOBL), which tracks the S&P 500 Dividend Aristocrats Index, was one of those funds. NOBL’s underlying index requires member firms to have minimum dividend increase streaks of 25 years.
The result is 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.
“2018 ended on a sour note for the S&P 500, as the index declined by more than 9% in December alone,” said S&P Dow Jones Indices in a recent note. “The drop-off resulted in the first negative calendar year return (-4.38%) for the S&P 500 (TR) since the financial crisis (2008). Meanwhile, the S&P 500 Dividend Aristocrats, which is designed to measure the performance of S&P 500 companies that have increased their dividends for the last 25 consecutive years, fared relatively better in 2018 but still ended in the red (-2.73%).”
Impressive Track Record
While NOBL is just over five years, its underlying index is nearly three decades old and the benchmark has a history of performing less poorly than the S&P 500 when the broader market declines.