Market Overview

Dividend Growth ETFs Stumble As Payout Growth Continues

Dividend Growth ETFs Stumble As Payout Growth Continues

Due in part to expectations of higher interest rates in the first quarter, some dividend stocks and exchange traded funds struggled against the broader market. On the bright side, S&P 500 dividends continue growing.

“Despite recent and expected hikes by the Federal Reserve and stocks selling off, U.S. companies paid a record amount of cash dividends in the first quarter of 2018,” CFRA Research Director of ETF & Mutual Fund Research Todd Rosenbluth said in a note out Monday. “Within the S&P 500, the average dividend increase during the first quarter was 13.9 percent, up from 10.4 percent during the fourth quarter of 2017 and 10.2 percent a year earlier.”

Numerous ETFs focus on dividend growth in varying fashions. The SPDR S&P Dividend ETF (NYSE: SDY) and the ProShares S&P 500 Dividend Aristocrats ETF (CBOE: NOBL) focus on companies with lengthy histories of raising payouts.

Dividend Growth Details

NOBL tracks the S&P 500 Dividend Aristocrats Index, which requires member firms to have minimum dividend increase streaks of 25 years. Many of NOBL's 53 holdings go well beyond that.

“In the first quarter of 2018, 20 constituents further increased the cash payout, including CFRA Strong Buy-recommended Coca-Cola Co. (NYSE: KO) and CFRA Buy-recommended General Dynamics Inc. (NYSE: GD),” said Rosenbluth. “For NOBL, the consumer staples (25 percent of assets) and industrials (17 percent) sectors are overweighted relative to the broader S&P 500 index.”

NOBL allocates about 22 percent of its combined weight to the health care and consumer discretionary sectors. The ETF has a distribution yield of 2.34 percent. NOBL is down 2.4 percent year-to-date.

NOBL's Rival

SDY follows the S&P High Yield Dividend Aristocrats, which requires a minimum dividend increase streak of 20 years. As is the case with NOBL, SDY is home to many stocks that easily exceed the minimum dividend increase streak required by the fund's underlying index.

“While much of the sector exposure differs, SDY and NOBL have 3 percent and 2 percent, respectively, in the growth-oriented information technology sector,” said Rosenbluth. “Paying and raising dividends had not been a long-term priority for the sector's S&P constituents. However, that has been changing in recent years. Indeed, 76 percent of tech companies in the S&P 1500 now sport a dividend.”

SDY allocates about 31 percent of its combined weight to consumer staples and financial services stocks. The ETF's dividend yield is 2.42 percent.

CFRA has Overweight ratings on NOBL and SDY.

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