Market Overview

A Strong Q3 For Dividend ETFs

A Strong Q3 For Dividend ETFs

The July through September period was another solid stretch for dividend exchange traded funds as investors added $4.5 billion to the asset class. More importantly, payout growth continued a robust upward trajectory in the third quarter.

What To Know

Dividend growth is the name of the game with the ProShares S&P 500 Dividend Aristocrats ETF (CBOE:NOBL). NOBL is the only ETF tracking the S&P 500 Dividend Aristocrats Index, which features a stringent requirement of at least 25 years of dividend increases for admittance.

“According to S&P Dow Jones, there were 426 dividend increases in the third quarter of 2019, down from 460 a year earlier. Meanwhile, this year there were 94 decreases, up from 67,” said Todd Rosenbluth, director of ETF & Mutual Fund Research at CFRA Research, in a note out Monday. “The narrowed dividend breadth highlights the benefits of an ETF’s diversification.”

Why It's Important

Up about 17% year to date, NOBL resides 2.24% below its all-time high. The fund yields just under 2%, implying ample room for continued dividend growth while underscoring NOBL's quality tilt, which steers investors away from high-yielding stocks that could be dividend offenders.

“Investors seeking equity income have a wide array of individual securities to consider. There are 423 issues (84%) within the S&P 500 Index that currently pay a dividend, up from 422 (83.6%) a year earlier,” said Rosenbluth.

NOBL allocates about 45.5% of its combined weight to the consumer staples and industrial sectors. Within the S&P 500, 97% of staples companies pay dividends while that percentage is a still impressive 93% for the cyclical industrials sector.

What's Important

NOBL's third-largest sector allocation is financial services 97% of S&P 500 members from that group are also dividend payers. The group has been one of the leading sources of payout growth in the U.S. during this decade.

Adding to NOBL's benefits are the fact none of its 57 holdings exceed weights of 2.07%, which reduces single stock risk, and that the fund has been consistently less volatile than traditional domestic equity benchmarks.

Rosenbluth has an Overweight rating on NOBL, the highest rating CFRA applies to ETFs. Year to date, investors have added $1.18 billion in new assets to NOBL.

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