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. For a complete list of the Dividend Aristocrats, please read our article: The Dividend Aristocrats List.
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 65 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, NOBL has maintained strong returns with lower volatility than the S&P 500, outperforming the market in the last 3 months. As of December 2, 2020, the fund had nearly all of its $6 billion in total assets spread across the 65 Dividend Aristocrats and 0.19% in cash.
The asset distribution is fairly even across the holdings. The share of total assets ranges from a low of 1.6% for AT&T Inc (NYSE:T), to a high of 2.1% for the Chevron Corporation (NYSE:CVX), with a 1.88% average share across the entire fund. The top 10 holdings account for only 16.31% which is only slightly lower 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. In the last five years, the fund has maintained an average annual growth rate of 12.34%. The fund paid a total annual dividend of $1.61 for 2020, which is equivalent to a 2.02% yield. This dividend yield is 14.1% higher than last year and is consistent with the fund’s 2.09% average yield over the past four years.
Through the trailing 12 months, the shares traded in a relatively fair range between the 52-week low of $48.62 in late March and its 52-week high of $80.33 in the final days of November 2020. The share price closed at the end of trading on Dec. 2 at $79.30, just below the recent peak and continuing its upward momentum—the Dec. 2 closing price was 65% higher than the March low.
The fund’s crash in March 2020 was enough to offset much of the growth from this year. Despite this sudden plummet, NOBL has since made a full recovery, now trading at the high-values it has grown to in the last several years. Investing in this fund, as well as any investment strategy centered around the Dividend Aristocrats, means betting on consistent returns over several years’ time. This ETF gives exactly that, having maintained a total 5-year return of 57.69%.
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 2, 2020, the fund had $15.8 billion of total assets spread across 118 individual holdings. The holdings include the 65 Dividend Aristocrats and additional high-dividend income companies with consecutive dividend increases for 20 years or more. These companies are then weighted by yield to make up the final fund portfolio, generally leaning toward sustainable mid-cap and large-cap holdings.
The fund is well-diversified and closely mirrors the asset shares of the underlying index. The Dividend Aristocrat with the highest yield – Exxon Mobil (NYSE:XOM), 8.66% – accounts for a 3.52% share of the fund’s total assets and is the only holding whose share of assets exceeds 3%. The top 10 holdings by share of assets make up slightly more than 22% of the fund’s assets. The top 41 holdings account for half of the fund’s assets.
Dividends and Share Price
The ETF collects dividend distributions of its holdings and passes those payouts through to the fund’s stockholders. In 2020, the fund distributed total dividends of $2.83 per share. This annual dividend corresponds to a 2.70% dividend yield, having grown 12.63% in the last year. This dividend distribution is still lower than SDY’s 4-year average of 3.47%, but the fund is keeping its upward trajectory with an average dividend growth rate of 8.13% in the last 5 years.
The fund’s share price fluctuated significantly between its 52-week low of $68.26 in late March 2020 and its 52-week high of $108.76 a month prior in February 2020. As of December 2, 2020, SDY is trading at $104.51, approaching its 52-week high yet again. While the fund suffered in March alongside its index and many other ETFs, SDY has returned to its previous strength and continues to appreciate capital while increasing dividends further still for its shareholders.
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The Best Dividend Aristocrats ETFs #3
Cboe Vest S&P 500 Dividend Aristocrats Target Income ETF (BATS:KNG)
This ETF tracks 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. With $82.4 million under management, 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 option is one month.
Dividends and Share Price
The share price fluctuates in the range of its 52-week high of $48.21 and its low of $30.39. It regained most of its losses in the latter half of 2020, now hovering at $47.37, remarkably close to the 52-week high. Although its price return in the trailing 12 months is only 3.53%, when accounting for dividends, the total return is 8.09% whilst targeting Dividend Aristocrats and building a stable portfolio. Likewise, KNG has seen a very successful month, having grown 12.52% in the last 30 days.
The fund pays a dividend quarterly and has a dividend yield of 3.70% with annual distributions of $1.76 per share. As KNG was recently formed—its inception was in 2018—there is little data on its dividend growth strategy. However, in its single year of growth, the fund increased its dividend by 18.53% of the original payment.
For our ultimate guide to the Dividend Aristocrats, please read our article: The Dividend Aristocrats Stocks.
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Jonathan Wolfgram is the assistant editor of website content at Eagle Financial Publications. He graduated from the University of Minnesota with Bachelor’s degrees in Finance and Philosophy. Jonathan writes for www.DividendInvestor.com and www.StockInvestor.com.