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Some Dividend ETFs Are Proving Their Durability

December 19, 2018 10:56 am
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Some Dividend ETFs Are Proving Their Durability

Dividend stocks and the related exchange traded funds have often provided less downside when broader markets falter. Recent price action indicates some dividend growth strategies performed significantly less poorly than broader equity benchmarks during the October through November swoon.

What To Know

The S&P 500 Dividend Aristocrats Index, accessible via the ProShares S&P 500 Dividend Aristocrats ETF (CBOE:NOBL), fell 4.38 percent from Oct. 1 through Nov. 23 compared to a loss of 9.39 percent for the S&P 500. NOBL's underlying index requires member firms to have increased dividends for at least 25 consecutive years.

“Dividend growth strategies held up better than the broader market during the recent downturn and also had the consistent growth to perform in rising markets,” according to ProShares research. “The key is quality—dividend growers generally had the financial stability to withstand market turmoil.”

NOBL holds 53 stocks, over 45 percent of which hail from the consumer staples and industrial sectors. Health care and consumer discretionary names combine for over 22 percent of the ETF's weight.

Why It's Important

The ability of dividend growers to provide some downside protection holds true across market capitalization sizes. The S&P MidCap 400 Dividend Aristocrats Index, the underlying index for the ProShares S&P MidCap 400 Dividend Aristocrats ETF (CBOE: REGL), lost just 2.39 percent from Oct. 1 through Nov. 23 compared to a 9.44 percent tumble for the S&P MidCap 400 Index, according to ProShares data.

REGL's index only holds mid caps that have boosted payouts for 15 consecutive years. The mid-cap dividend ETF holds 49 stocks, over 45 percent of which are financial services and utilities names.

“While the S&P 500 declined more than 9% during the two-month period from October 1, 2018 through November 23, 2018, dividend growth strategies fared far better,” notes ProShares. “And that wasn’t limited to the domestic large-cap stock universe. It applied to mid-cap and small-cap stocks as well.”

What's Next

Small-cap dividend growers are part of this phenomenon, too. The ProShares Russell 2000 Dividend Growers ETF (CBOE: SMDV) follows the Russell 2000 Dividend Growth Index. That benchmark requires a dividend increase streak of at least a decade.

From Oct. 1 through Nov. 23, SMDV's index fell just 1.39 percent compared to a slide of more than 12 percent for the Russell 2000 Index.

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