NOBL tracks the S&P 500 Dividend Aristocrats Index, a benchmark that only includes companies that have boosted dividends for 25 consecutive years. Dividend growth strategies, including NOBL, often feature exposure to the quality factor and a recent analysis of NOBL’s underlying index confirms as much.
“One of the best-known examples of dividend longevity is the S&P 500 Dividend Aristocrats. These 57 companies have raised their dividends for at least 25 consecutive years,” reports Lawrence Strauss for Barron’s. “The ProShares S&P 500 Dividend Aristocrats ETF (NOBL) returned minus 5.5% in May, better than the S&P 500’s result of minus 6.35%.”
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.
Not the First Time NOBL Outperforms
Over the long-term, dividend strategies top the S&P 500 on a total return and an absolute basis. Reinvesting dividends is also a vital part of the equation. For the three years ended Jan. 29, 2019, including dividends reinvested, NOBL returned 44.30% compared to 35.50% without dividend reinvestment.
May was not the first time NOBL performed less poorly than the S&P 500 when the broader market swooned. The dividend exchange traded fund topped the benchmark U.S. equity gauge in the fourth quarter of 2018, too.
“The same relative outperformance occurred in the last three months of 2018 when the S&P 500 lost 13.5%. Consistent dividend growers outperformed their respective benchmarks in large, mid- and small-cap,” according to Barron’s.
Company stocks that issue high dividend yields can be masking their distressed books or may not be sustainable and are heading for dividend cuts. Quality dividend ETFs, such as NOBL, try to limit the impact of these value traps by requiring a history of sustainable dividend growth.
“The S&P 500 aristocrats have a five-year annual return of about 9.9%, compared with 9.8% for the S&P 500. The same performance advantage has held true for consistent mid- and small-cap growers as well,” notes Barron’s.
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