ETF Spotlight: Dividend Aristocrat Index

The concept of dividend growth is one that investors are becoming more attuned to in this low interest rate environment. With bond yields trading near multi-year lows, an alternative solution for income investors is to capture a solid dividend stream from high quality companies.

Related Link: 3 Thriving ETFs With Over 500% AUM Growth In 2014

ProShares S&P 500 Dividend Aristocrats ETF

The ProShares S&P 500 Dividend Aristocrats ETF NOBL seeks to achieve those goals by selecting companies with a long history of dividend growth, low volatility and strong balance sheets. In fact, to be included in this index, companies must have at least a 25 year history of raising their dividends on an annual basis.

NOBL contains a minimum of 40 stocks, which are equally weighted so as not to skew the fund’s performance towards larger companies. In addition, no single sector is allowed to comprise more than 30 percent of the total asset allocation and holdings are rebalanced on a quarterly basis. 

This ETF includes well-known names such as Wal-Mart Stores, Inc. WMT, PepsiCo, Inc. PEP and Johnson & Johnson JNJ. The net expense ratio for NOBL is listed at a modest 0.35 percent and its current 30-day SEC yield is 1.84 percent. Dividends for this ETF are paid on a quarterly basis and have grown every three months since inception in 2013.

In 2014, this ETF returned 15.55 percent versus 13.54 percent for the market benchmarkSPDR S&P 500 ETF Trust SPY. That success in NOBL was likely due to an overweight allocation to consumer staples stocks and underweight exposure to energy companies.

More recently, this aristocrat ETF surpassed $500 million in total assets and was named ETF Product of the Year at the William F. Sharpe Indexing Achievement Awards.

Michael L. Sapir, co-founder and CEO of ProShare Advisors LLC noted that “NOBL's success reflects the potential of dividend growth strategies to generate strong returns with reduced volatility.”

NOBL Competitors

Competitors to NOBL include the SPDR S&P Dividend (ETF) SDY, which follows the S&P High Yield Dividend Aristocrats Index. This ETF selects approximately 100 stocks from a composite of 1500 companies that have consistently increased dividends for at least 20 years.

In addition, there is an international variant in the ProShares MSCI EAFE Dividend Growers ETF – ProShares Trust EFAD – that focuses on MSCI EAFE companies with 10 years of dividend growth history.

All of these ETFs offer a compelling dividend growth story through stalwart companies and show marked differences from their parent indexes as well.