These ETFs Deliver Dividend Consistency

Amid expectations that the Federal Reserve is close to raising interest rates and forecasts payout growth will slow in the current quarter, some dividend exchange-traded funds have struggled this year.

In particular, dividend ETFs heavy on rate-sensitive sectors, such as utilities, have been pinched by interest rate concerns.

S&P 500 Dividend Growth Versus Payout Growth

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.

“Stewart Glickman, an S&P Capital IQ equity analyst, noted that while the dividend growth for the S&P 500 index was 7.6 percent on a compounded annual growth rate from 2005–2014, information technology (19 percent), consumer discretionary (16 percent) and energy (9.6 percent) were the leaders.

Related Link: A Winning Dividend ETF For Market Tumult

“The energy sector, with an average 3.3 percent dividend yield is the lone one of the trio that provides a higher yield than the S&P 500 index's 2.2 percent. Meanwhile, consumer discretionary and information technology were among the dividend yield laggards, well behind leaders' telecom services (5.3 percent) and utilities (3.7 percent),” said S&P Capital IQ in a recent research note.

A Look At NOBL, ProShares Dividend Growth Fund

ProShares S&P 500 Dividend Aristocrats ETF NOBL tracks the S&P Dividend Aristocrats Index, which mandates each holding has a dividend increase of at least 25 years.

Due to the emphasis on long-running dividend increase streaks, NOBL and the Vanguard Dividend Appreciation ETF VIG, have relatively light exposure to technology stocks because the concept of tech dividends has evolved in recent years – meaning, many tech companies do not long enough dividend increase to qualify for admission to these ETFs.

In NOBL's case, the ETF's combined consumer discretionary, energy and tech exposure is just over 17 percent. By comparison, industrials account for over 15 percent of NOBL's weight, while consumer staples stocks are the fund's largest sector allocation at nearly 26 percent.

Another Dividend Growth Fund: DGRW

The WisdomTree U.S. Quality Dividend Growth Fund (WisdomTree Trust DGRW) is just two and a half years old and already has nearly $540 million in assets under management. DGRW does not rely on dividend increase streaks as part of its weighting methodology. As such, DGRW's combined consumer discretionary and tech weight of 41.2 percent is large compared to old guard dividend ETFs.

“In the one-year period ended October 22, NOBL was the best performer rising 7.0 percent, ahead of the 6.7 percent for DGRW and the 3.5 percent for VIG. However, in ranking ETFs, S&P Capital IQ thinks investors need to look inside to understand what makes them different by reviewing holdings,” said S&P Capital IQ.

DGRW features four tech stocks among its top 10 holdings, and the ETF is one of a small number that features Apple Inc. AAPL among its top five holdings.

Apple is DGRW's third largest holding at a weight of 4.2 percent.

Disclosure: Todd Shriber owns shares of DGRW.