Reduce Volatility, Boost Income With Royal Dividend ETF

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Dividend stocks and exchange traded funds not only help investors generate income, but some dividend-bearing assets can also help reduce portfolio volatility. The ProShares S&P 500 Aristocrats ETF (CBOE: NOBL) provides the best of both worlds.

NOBL, which tracks the S&P 500 Dividend Aristocrats Index, targets the cream of the crop, only selecting components that have increased their dividends for at least 25 consecutive years. Consequently, investors are left with a portfolio of high-quality, sustainable dividend payers as opposed to more high-yield focused funds that may contain companies on more precarious financial positions.

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.

Over the past three years, NOBL had annualized volatility of 12% compared to 12.7% for the S&P 500, according to ETF Replay data. During that period, the maximum drawdown on NOBL was just 10.1%, or nearly 300 basis points less than the maximum drawdown experienced by the S&P 500.

“Even better is that the 50 firms in NOBL have managed to outperform the regular S&P 500 in a big way. One hundred dollars invested in the S&P’s Dividend Aristocrats when it was first launched in 2005 would be worth around $400 now. That number would be less than $300 for the regular S&P 500 during that time. Meanwhile, NOBL has been far less volatile than the regular index too,” reports InvestorPlace.

NOBL, which had $3.56 billion in assets under management at the end of 2017, allocates 24.2% of its weight to the consumer staples sector. Industrial and healthcare stocks combine for about 29% of the ETF's weight.

NOBL's 12-month distribution yield of 2.22% could be seen as a positive trait in a rising interest rate environment. With interest rates rising, high-yield dividend stocks could lag while dividend payers with lower yields and quality traits could outperform.

NOBL has some dividend growth counterparts addressing other market caps and regions, including the ProShares Russell 2000 Dividend Growers ETF (CBOE: SMDV), ProShares S&P MidCap 400 Dividend Aristocrats ETF (CBOE: REGL) and the ProShares MSCI Emerging Markets Dividend Growers ETF (CBOE: EMDV).

For more on smart beta ETFs, visit our Smart Beta Channel.

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