It may not turn out to be the global financial crisis — when S&P 500 (.SPX) dividends cratered because of cuts by the banking sector. But it’s becoming more apparent that payout growth in the U.S. will slow this year, if not contract, putting added emphasis on Dividend Aristocrat ETFs.
The premise behind Dividend Aristocrats ETFs is simple. These funds track indices where one the of primary requirements for entry is the length of a company’s payout increase streak. This is one of the more common methodologies in the dividend index fund universe, with the other being weighting by yield.
However, yield strategies are risky at a time when some of the sectors with the largest yields are epicenters of negative dividend action.
On the other hand, companies that consistently grow payouts are viewed as quality firms, a trait that’s vital in today’s market. Quality usually means better balance sheets and lower volatility.
With those important characteristics in mind, let’s examine some of the premier Dividend Aristocrats ETFs. Note that the funds highlighted here track dedicated dividend aristocrats benchmarks:
- ProShares S&P 500 Dividend Aristocrats ETF (NOBL)
- ProShares S&P Technology Dividend Aristocrats ETF (TDV)
- SPDR S&P Dividend ETF (SDY)
- SPDR S&P Global Dividend ETF (WDIV)
- ProShares S&P MidCap 400 Dividend Aristocrats ETF (REGL)
ProShares S&P 500 Dividend Aristocrats ETF
Expense ratio: 0.35% per year, or $35 on an initial $10,000 investment
The ProShares S&P 500 Dividend Aristocrats ETF (NOBL) is one of the kings in the Dividend Aristocrats ETF world. It helps that the fund follows one of the most widely known benchmarks in the space: the S&P 500 Dividend Aristocrats Index.
That index has a high barrier to entry, requiring companies to have dividend increase streaks of at least 25 years.
However, many NOBL components have payout increase streaks that span four decades or longer. NOBL’s mandate leads to a lineup that’s small (just 64 holdings) relative to a traditional broad-market index fund. But single-stock risk in this ETF is minimal, because components are equally weighted.
NOBL is about 6.5 years old, so it’s endured some trying times, including the fourth-quarter swoon in 2018 and the current bear market. What makes this fund a compelling bet for long-term investors, beyond the dividend growth, is that NOBL has an established track record of being less volatile. Plus, it tends to outperform the broader benchmarks when the market swoons.
Consumer staples and industrial stocks combine for over 43% of the fund’s weight.
ProShares S&P Technology Dividend Aristocrats ETF
Expense ratio: 0.45%
Having debuted last November, the ProShares S&P Technology Dividend Aristocrats ETF (TDV) is one of the newest entrants to the dividend growth fund fray. It’s also the second ETF that focuses on technology dividends.
TDV follows the S&P Technology Dividend Aristocrats Index, the tech offshoot of the aforementioned traditional aristocrats benchmark.
With the combination of tech and dividends still being a relatively new phenomenon, TDV’s requirement for entry is less stringent with a minimum dividend increase streak of seven years.
However, a dozen TDV components have payout hike streaks that are more than double the index’s requirement. This ProShares fund also equally weights its holdings, a group that includes Dow Jones Industrial Average (.DJI) components International Business Machines (IBM), Apple (AAPL) and Microsoft (MSFT).
Each of these components have balance sheets supportive of current dividends and future payout growth.
SPDR S&P Dividend ETF
Expense ratio: 0.35%
It debuted in late 2005 and has $13.5 billion in assets under management. That makes the SPDR S&P Dividend ETF (SDY) the oldest and largest of the Dividend Aristocrats ETFs.
This fund follows the S&P High Yield Dividend Aristocrats Index, and like the aforementioned NOBL, features a stiff requirement for entry. In SDY’s case, stocks must have minimum dividend increase streaks of at least 20 years..
SDY has a roster of 120 holdings, significantly more than NOBL. But like its ProShares rival, SDY’s holdings are equally weighted.
Although SDY’s index implies high yield, the reality is the fund’s combined energy and real estate weight is less than 8% and its dividend yield is just 3.6%.
SPDR S&P Global Dividend ETF
Expense ratio: 0.4%
The SPDR S&P Global Dividend ETF (WDIV) may well be the most overlooked of the Dividend Aristocrats ETFs. But, it is one of the premier avenues for applying the aristocrats methodology to ex-U.S. stocks in concert with domestic equities.
The $219.7 million WDIV is linked to the S&P Global Dividend Aristocrats Index, which features a more flexible dividend increase requirement of at least 10 years. That gives the fund a roster of almost 100 components.
Its roster is actually pretty good when you consider that it represents 19 countries.
WDIV makes sense for conservative investors looking for some geographic diversity — because the bulk of its holdings are in developed markets. For example, the United States, Canada and France combine for about 45% of the fund’s weight.
WDIV yields a stout 4.55%, or nearly 200 basis points more than the MSCI All-Country World Index. None of the holdings exceed a weight of 2.03%.
ProShares S&P MidCap 400 Dividend Aristocrats ETF
Expense ratio: 0.4%
Many investors tend to focus on large-cap stocks when it comes to dividends. But with the right methodology, quality income can be derived from smaller companies. The ProShares S&P MidCap 400 Dividend Aristocrats ETF (REGL) proves as much.
Pickings are slim in the mid-cap dividend ETF universe and REGL is the only fund in this space using a Dividend Aristocrats index — the S&P MidCap 400 Dividend Aristocrats. Proving there are some solid options for mid-cap equity income, that index requires a minimum payout increase streak of 15 years and the fund has 53 components. There are other perks, too.
“As a group, REGL’s holdings generally have had stable earnings, solid fundamentals, and strong histories of profit and growth,” ProShares’ website states.
Additionally, REGL can be less volatile and offers smaller draw-downs than traditional mid-cap funds when markets tumble. Financial services, industrial and utilities stocks combine for 60% of the REGL roster.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.
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