Advisors and some enthused investors have probably heard at least something about the dividend aristocrats. It’s a group of S&P 500 components that have raised their payouts for at least 20 consecutive years.
There are related indexes and ETFs dedicated to this royalty. But there are other ways of accessing dividend royalty that are worth considering. For example, the VanEck Morningstar Durable Dividend ETF (DURA) is home to multiple stocks that are dividend aristocrats. But the ETF is solely focused on that status. In fact, stocks’ payout increase streaks aren’t a point of emphasis for DURA. And that could work in favor of investors who embrace the fund.
DURA follows the Morningstar US Dividend Valuation Index. This index focuses on high dividend companies with balance sheets to sustain those payouts and those that are trading at attractive valuations. The methodology is arguably attractive for the simple reasons that some big dividend names can be richly valued while others may not have the resources to consistently grow payouts. Worse yet, some may avail themselves to be dividend cutters.
DURA Has Dividend Dependability
It’s easy to understand why so many dividend investors are attracted to companies that have lengthy histories of boosting payouts. Particularly when those rising payouts are reinvested over long holding periods, the investor can end up with a significant stake.
DURA brings an element of quality to that equation. And the ETF’s priority isn’t long dividend increase streaks, its other mandates are often linked to steadily rising payouts. Additionally, some DURA member firms have enviable competitive positioning in their respective industries. Take the case of medical device giant Medtronic (MDT).
“Medtronic’s standing as the largest pure-play medical-device maker remains a force to be reckoned with in the med-tech landscape. Pairing Medtronic’s diversified product portfolio aimed at a wide range of chronic diseases with its expansive selection of products for acute care in hospitals has bolstered Medtronic’s position as a key partner for its hospital customers,” noted Morningstar analyst Debbie Wang.
Undervalued Dependable Raisers
Oil giants Exxon Mobil (XOM) and Chevron (CVX) combine for nearly 10% of DURA’s roster. And both fit the bill as undervalued dependable dividend raisers. Both energy producers are exercising prudence. They could be able to defend their dividends even as oil prices materially decline.
“Exxon capped spending with guidance of $20 billion-$25 billion a year for 2023-27. [That] should keep the dividend safe at $40/barrel. However, earnings should still grow with plans to double earnings and cash flow from 2019 levels by 2027. Meanwhile, the dividend break-even should fall to $30/bbl, thanks to structural cost efficiencies and high-margin new projects. This guidance excludes Pioneer Natural Resources,” added Morningstar’s Allen Good.
Clorox (CLX) and T. Rowe Price Group (TROW) are also among DURA member firms. Both have enviable track records of steadily rising payouts that have the ability to continue that growth.
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