When it comes to the Xtrackers S&P ESG Dividend Aristocrats ETF (SNPD ), investors may want to focus more on fundamentals and methodology and less on age.
Fresh off its November debut, SNPD could be an interesting 2023 idea for equity income investors, and not just because it’s one of a scant number of exchange traded funds dedicated to both dividend equities and environmental, social, and governance (ESG) virtues.
While 2022 was up and down for ESG ETFs — down in terms of performance, up regarding ongoing adoption and enthusiasm — SNPD’s dividend dynamic could help long-term investors endure shifting ESG attitudes while providing income protection. Despite its rookie status, SNPD could be a timely addition to portfolios.
“Savita Subramanian argues that we are in a total return world and sees 3% dividend growth in 2023 despite a 9% drop in earnings. Dividends are scare with just 16% of S&P 500 stocks sporting a dividend yield above 4%. Two-thirds of equity returns came from dividends during much of the 20th century, compared to just 14% over the past decade. The dividend yield factor also typically outperforms in a Late Cycle regime,” notes Bank of America.
Adding to the allure of SNPD for investors that want derive income from ESG are the new ETF’s dividend growth tendencies. The fund tracks the the S&P ESG High Yield Dividend Aristocrats Index, which requires that member firms have dividend increase streak of at least two decades. That’s relevant because payout growth is a sign of quality, and has long been an important drive of total returns.
“Dividends tend to increase after periods of market tumult to attract investors back to shares,” adds BofA. “Secular shifts between price return and dividend growth leadership are also evident. Since 1872, annual dividend growth has averaged 4.3% compared to 6.3% price returns. Annual dividend growth averaged 6.2% between 1970 and 1980 after an overvalued, concentrated market corrected sharply. Price returns only averaged 3% per year over the same decade. Similarly, dividends grew by 6.2% on average between 2000 and 2007 while annual price returns averaged just 2.5%.”
Another benefit of SNPD is the association of dividend payers with the value factor. That’s a departure from legacy ESG ETFs, most of which lean heavily into growth stocks. SNPD’s value tilt is notable with value stocks on a two-year winning streak against growth rivals and with market observers forecasting more of the same in 2023.
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