A lot of dividend exchange-traded funds are advertised as avenues to payout consistency. The ProShares S&P 500 Dividend Aristocrats ETF (NOBL) backs it up by tracking a dividend aristocrats index that only holds companies that have boosted payouts for at least 25 straight years, an important trait at a time of slowing S&P 500 dividend growth.
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While dividend growth for the S&P 500 has been robust over the past decade, payout growth across sectors has not been equal. That means income investors should hone in on the dividend ETFs with significant exposure to the sectors that have been driving payout growth.
Although it focuses on consistent dividend growers, NOBL is not heavily allocated to high-yield sectors. For example, telecom and utilities stocks combine for just over four percent of the ETF's weight. Likewise, due to the fact that dividends in the technology sector are a relatively new concept, that group is NOBL's smallest sector allocation at just over 2 percent.
Historically, three-year rolling returns revealed consistent outperformance from the S&P 500 Dividend Aristocrats Index, which is composed of quality companies with at least 25 consecutive years of dividend growth, according to ProShares. In particular, the index produced excess returns over the S&P 500 during the financial crisis of 2008, in the 2011 rally and during the majority of the periods since then.
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The Index And Peers
NOBL's underlying index screens the S&P 500 for those firms that have increased their annual dividends for at least 25 years running no mean feat. In an effort to maintain adequate diversification, the index must have at least 40 constituents and no sector can represent more than 30 percent of its value, according to a recent Morningstar note.
As Morningstar noted, NOBL is pricey compared against its relevant Schwab and Vanguard competitors. In fact, NOBL's annual expensive ratio of 0.35 percent is five times that of the competing Schwab ETF and nearly quadruple that of the rival Vanguard fund.
However, investors should not get caught up in pinching pennies. Over the past two years, those Schwab and Vanguard ETFs are up an average of 15.1 percent, but NOBL is higher by more than 26 percent. Yes, expense ratios are important over long-term holding periods, but simple math dictates that saving 25 or 30 basis points on fees when the more expensive ETF outperforms the cheaper one by more than 500 basis points per year is not a good deal.
With NOBL, investors are acknowledging as much as the ETF, which debuted in October 2013, now has $2.3 billion in assets under management.
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