The Best Dividend Aristocrats ETFs
By: Ned Piplovic,
Dividend Aristocrats are a group of S&P 500 stocks that have boosted their annual dividend payouts for at least 25 consecutive years and whose individual market capitalization exceeds $3 billion and investors can access these companies through Dividend Aristocrats ETFs.
Investors can take positions in a selection of individual Dividend Aristocrats stocks. Alternatively, investors can simply buy into one or two Dividend Aristocrats ETFs. Some of these Dividend Aristocrats ETFs only track the performance of the 53 Dividend Aristocrats companies. Other Dividend Aristocrats ETFs track the performance of other high-yield stocks in addition to the Dividend Aristocrats.
The following three funds are currently the best Dividend Aristocrats ETFs, with three distinctive approaches to generating higher-than average dividend income
The Best Dividend Aristocrats ETFs #1
S&P 500 Dividend Aristocrats ETF (BATS:NOBL)
This ETF is the only fund in this group that focuses exclusively on the S&P 500 Dividend Aristocrats. Since its inception in 2013, the fund has outperformed the overall S&P 500 growth with lower volatility. As of December 17, 2018, the fund had nearly all of its $3.6 billion in total assets spread across the 53 Dividend Aristocrats and 0.25% in cash.
The asset distribution is fairly even across the holdings. The share of total assets ranges from a low of 1.48% for the Target Corporation (NYSE:TGT), to a high of 2.06% for the Kimberly-Clark Corporation (NYSE:KMB), with a 1.88% average share across the entire fund. The top 10 holdings account for only 20.14% which is only slightly higher than the 17.21% combined share of the bottom 10 holdings – excluding cash.
Dividends and Share Price
Since this ETF holds only companies that raise their annual dividend payouts every year, it is logical that the NOBL ETF increased its dividend distribution every year since its inception in October 2013. Over the past five years, the fund’s total annual dividend distribution advanced 150%, which corresponds to an average annual growth rate of nearly 20%. The fund paid a total annual dividend of $1.39 for 2018, which is equivalent to a 2.3% yield. This dividend yield is 22% higher than the fund’s own 1.85% average yield over the past five years.
Through the trailing 12 months, the shares traded in a relatively narrow range between the 52-week low of $60.65 in early May and its 52-week high of $68.36 at the beginning of September 2018. The share price closed at the end of trading on Dec. 18 at $61.43, which was 10% down from the September peak and 4.2% lower than it was one year earlier. However, the Dec. 18 closing price was 1.3% higher than the May low, as well as nearly 40% higher than it was five years ago.
The fund’s total dividends for 2018 were unable to offset the sharp share-price decline in early December 2018. The fund delivered a total loss of 1.2% for the trailing 12 months. However, the Dividend Aristocrats deliver returns over the long term. Analogously, this fund’s performance over the extended horizon fares much better with a three-year total return of 32% and a five -year total return of nearly 56%.
The Best Dividend Aristocrats ETFs #2
SPDR S&P Dividend ETF (NYSE:SDY)
This ETF tracks the performance of the S&P High Yield Dividend Aristocrats Index. As of December 17, 2018, the fund had $15.7 billion of total assets spread across 111 individual holding. The holdings include the 53 Dividend Aristocrats and additional high-dividend income companies. The underlying index includes more holdings than the core 53 Dividend Aristocrats, because the index expands the consecutive annual hikes minimum threshold from 25 to 20 years.
The fund is well-diversified and closely mirrors the asset shares of the underlying index. The Dividend Aristocrat with the highest yield – AT&T Inc. (NYSE:T) – accounts for a 2.34% share of the fund’s total assets and is the only holding whose share of assets exceeds 2%. The top 10 holdings by share of assets make up slightly more than 17% of the fund’s assets. The top 38 holdings account for half of the fund’s assets.
Dividends and Share Price
The ETF collects dividend distributions of its holdings and passes through those payouts to the fund’s stockholders. Through the first three quarters of 2018, the fund distributed total dividends of $1.774 per share. The most recent quarterly payout of $0.595 converts to a $2.38 annualized payout and yields 2.63%. However, since 2013, the fund has declared at least three additional dividends in late December. Therefore, the total annual dividend and the dividend yield should increase before the end of the year. The fund’s dividend distributions through the first three quarters tracks 20% ahead of 2017 figures. Assuming the trend holds for the December distributions, the total dividend payout for the year could exceed $5.00 per share, which would translate to a dividend yield of approximately 5.5%.
The fund’s share price fluctuated significantly between its 52-week high of $88.64 in late March 2018 and its 52-week high of $100.02 on September 20, 2018. However, the share price declined with the rest of the financial markets since the beginning of December and closed on Dec. 18 at $91.08, which was 3.4% lower than 12 months earlier. However, the Dec. 18 closing price was 2.8% higher than the March low and 25.7% higher than it was five years ago. The current share-price decline erased most of the dividend distributions and is trending flat for the year. However, the three-year total return is 32% and the five-year total return is nearly 51%, with almost half of those returns originating from dividend distributions.
The Best Dividend Aristocrats ETFs #3
Cboe Vest S&P 500 Dividend Aristocrats Target Income ETF (BATS:KNG)
This ETF track the price and yield performance, before fees and expenses, of the Cboe S&P 500 Dividend Aristocrats Target Income Index Monthly Series. Conventional income investors generally must choose between high dividend stocks that historically have delivered lower total returns with higher volatility and companies with lower dividend yields with steady dividend increases that deliver higher-than-average total returns and lower volatility. KNG aims to eliminate this apparent dilemma by selecting the higher quality dividend grower stocks and selling call options on some of the stock holdings to generate additional income.
The fund seeks the additional income from options premiums by converting a portion of each stock’s potential growth into current income. To execute this strategy, the fund’s managers compare the stock portfolio’s dividend-generated income to the overall income and seek to bridge any gaps with call option premiums on a portion of each holding. While limited to a maximum of 20% of each holding, the share of holdings against which the fund sold call options generally range from 8% to 11%. The average term of each call options is one month.
Dividends and Share Price
The share price advanced 10% from $39.79 at the fund’s inception on March 26, 2018, to the 52-week high of $43.77 on September 21, 2018. However, after peaking in September, the share price gave back all those gains and fell to its 52-week low of $39.24 by December 17, 2018. The share price regained some of those losses during the following trading session and closed at the end of Dec. 18 at $40.29, which was 1.3% above its inception price at the beginning of March 2018.
The fund distributed two quarterly dividends so far in 2018. The most recent dividend payout of $0.464 is 7.1% higher than the previous dividend payout of $0.405. This most recent distribution converts to a $1.856 annualized payout and a 4.6% dividend yield. Including the two rounds of dividend distributions, the fund’s total return to date is 3.44%.
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Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.