A Noble Approach To Dividends

Although U.S. interest rates are still low, the specter of more rate hikes by the Federal Reserve this year has dividend stocks and exchange-traded funds facing scrutiny.

Typically, high dividend strategies thrive in sanguine interest rate environments, while languishing when Treasury yields climb. The alternative is for investors to embrace dividend growers from cyclical sectors in preparation of higher interest rate, but not all high dividend strategies need to be eschewed amid modest increases to borrowing costs.

The popular ProShares S&P 500 Dividend Aristocrats ETF NOBL NOBL is an example of an ETF that fits the bill in terms of leveraging investors to payout growth and consistency. NOBL tracks the S&P Dividend Aristocrats Index, which mandates each holding has a dividend increase of at least 25 years. The ETF is CFRA Research's focus ETF for the month of February.

ETF Of The Month

“To us, an ETF based on companies with long-term record of increasingly returning money to shareholders limits the risk profile of the portfolio. While rising interest rates may make high dividend yielding stocks less attractive, we think dividend growers will remain in favor as their managements have strong records through various business cycles,” said CFRA in a note out Wednesday.

At first glance, NOBL's 25.3 percent weight to consumer staples stocks belies its cyclical posture while giving the impression that this ETF is highly sensitive to interest rates. However, defensive telecom and utilities stocks are just four percent of NOBL's weight.

On the other hand, NOBL's cyclical underpinnings are clear with a combined allocation of 37.2 percent to industrial, consumer discretionary and materials stocks.

NOBL's Crowning Achievements

NOBL's “index is reconstituted on an annual basis to incorporate companies that have either reached the 25-year milestone or join the S&P 500 index; stocks are removed for failing to meet those criteria,” said CFRA. “CFRA thinks amid market uncertainty related to the aging bull market and a new president, an ETF that can provide both potential downside protection as well as holding some attractively valued stocks is worthy of attention. With additional favorable low costs, NOBL is a strong ETF for consideration.”

NOBL is up 14.1 percent over the past 24 months, an advantage of 60 basis points over the largest U.S. dividend ETF over that period.

CFRA has an Overweight rating on NOBL, the research firm's highest rating for ETFs.