When it comes to dividends, there is something to be said for consistency, a virtue accessible by myriad exchange-traded funds. That includes the ProShares S&P 500 Dividend Aristocrats ETF (NOBL).
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Slow And Steady Wins The Race
NOBL tracks the S&P Dividend Aristocrats Index, which mandates each holding has a dividend increase of at least 25 years. The ETF is also an equal-weight fund, which helps mitigate stock-specific risk. However, the ETF allocates nearly 26.5 percent of its lineup to consumer staples names, by far its largest sector allocation.
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.
NOBL And The Lack Of High-Yielding Sector Allocation
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 4 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.
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The S&P 500 Dividend Aristocrats Index includes high quality companies that have increased their dividends every year for at least 25 consecutive years. How are these companies able to continually grow dividends? One answer is by delivering earnings growth. The S&P 500 Dividend Aristocrats have delivered positive annual earnings growth for the first two quarters of 2016 in amounts that were substantially higher than the broad market, according to S&P Dow Jones Indices.
Dividend Aristocrats Index
The S&P 500 Dividend Aristocrats Index is NOBL's underlying index. NOBL holds 50 companies with an average market value off $68.6 billion, indicating this is a heavily large-cap ETF. The key for investors is that dividend growth stocks outperform over the long term and, with inflation rising, dividend growers have shown a historical penchant for trumping increased inflation.
Members of the S&P 500 Dividend Aristocrats Index have another advantage over the traditional S&P 500: lower volatility.
Historically, the Dividend Aristocrats have grown their dividends on a more consistent basis and at a higher compound rate than the broad market, underscoring their quality and potential for strong performance. Since inception of the index, the Aristocrats have delivered higher returns with lower volatility than the S&P 500, added S&P Dow Jones Indices.
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