FXRally Broker Analysis 7 Dividend Aristocrats ETFs for Safe, Consistent Returns
London, UK, 5th Feb 2022, ZEXPRWIRE, Dividend Aristocrats are a special set of companies that have raised their dividends for at least 25 consecutive years. This requirement separates them from boring dividend payers and thrifty retirees with a propensity to reinvest their income.
One common mistake many people make with investing is viewing it as just taking a risk, but most professionals view it as risk vs reward. The more you are willing to take, the greater your expected return should be. FXRally broker says Dividend Aristocrats are generally viewed as lower risk names due to their historical tendency to outperform over time. It is quite common for them to have higher yields than non-dividend-paying stocks or ETFs with similar market capitalization and risk profiles.
These seven Dividend Aristocrats not only have the longest track records of dividend increases, but they also have below-average volatility and drawdowns during bear markets. When you put them all together with a diversified mix in a low-cost ETF like NOBL, it allows you to capture the benefits of the Dividend Aristocrats Index (including higher yields, lower volatility, and greater long-term returns) with automatic diversification.
One difference between investing in ETFs vs individual stocks or mutual funds is that you can get instant diversification by buying one ETF. No need to own several dividend payers to diversify your income stream.
Market Capitalization:
It is important to remember that, as a rule, large companies tend to be less risky than smaller firms. However, it’s not an absolute phenomenon. It needs to be examined on a case-by-case basis since there are plenty of high-quality small-cap stocks with low volatility and strong dividend growth track records.
As shown in the table below, NOBL has an average market capitalization of $75 billion, which is still small enough to provide great diversification benefits while also giving you access to large-cap companies that are more stable than many mid-sized or small caps on their own.
7 Dividend Aristocrats ETFs
- iShares S&P 500 Dividend Aristocrats (NOBL)
Index ETFs like NOBL were the original passive, low-cost portfolio building blocks, and as such, they remain useful for those looking to construct a long-term dividend growth portfolio.
If you’re just getting started with index investing or if you decide that this is the best option for you, buying and holding one ETF is easy and cost-effective. You won’t need to rebalance or worry about individual stock picking since the diversification benefits come from owning a basket of individual securities.
There’s also peace of mind in knowing that if you add more money once a year (or even less) and leave it alone, you’ll gradually build a large and well-diversified portfolio that has plenty of upsides to go along with downside protection during bear markets.
- Vanguard Dividend Appreciation ETF (VIG)
Since most dividend growth investors are interested in owning stocks with strong histories of dividend increases, Vanguard Dividend Appreciation ETF (VIG) is a popular choice. However, it’s important to note that VIG tracks the MSCI US Investable Market Dividend Aristocrats Index, which includes all S&P 500 stocks with 25+ years of consecutive dividend increases, but that doesn’t necessarily mean that each constituent has raised their dividends every year during that time.
As with virtually all index funds and ETFs, certain stocks will be dropped each year due to their size (typically those under $3 billion in market cap unless they pay out a very low percentage of earnings as dividends) or lack recent dividend growth.
VIG has an average market cap that is significantly larger than NOBL’s – $57 billion vs $75 billion – which means you’ll lose some diversification benefits by choosing VIG over the iShares fund. However, it also provides access to companies with even stronger dividend growth records and histories of regular raises, so it’s not a bad choice if your focus is on high-quality businesses that can generate more income for you now and in the future.
- AdvisorShares TrimTabs Float Shrink ETF (TTFS)
AdvisorShares is one of many asset managers who have seen increased demand for yield-oriented, low volatility funds designed to reduce downside risk. Fund managers like David Eiswert manage TTFS daily, but there is a board that oversees all ETFs offered by AdvisorShares.
TTFS’ investment objective is to seek maximum total return while also striving to reduce the downside risk of its portfolio’s net asset value (NAV) by short positions in equities, equity options and futures contracts. It invests in many of the same Dividend Aristocrat Index companies as VIG and NOBL. Still, it also shorts some of them to enhance returns and lower volatility.
- WisdomTree U.S. Quality Dividend Growth Fund (DGRW)
WisdomTree has a host of dividend funds that follow various international, domestic, and even emerging dividend aristocrat indices. DGRW tracks the WisdomTree U.S. Quality Dividend Growth Index, which includes approximately 100 of the highest-quality dividend growth stocks – including some that have sold off in recent years due to excessive investor enthusiasm for yield and volatility avoidance rather than total return and high income.
- WisdomTree U.S. High Dividend Fund (SDY)
As I mentioned earlier, many index funds and ETFs follow S&P 500 dividend aristocrats indices. Still, SDY takes a slightly different approach by focusing on some of the highest yielding stocks in the index. That strategy also allows it to include certain companies which have grown their dividends at above-average rates for decades.
- WisdomTree U.S. Quality Dividend Growth Fund (DGRW)
This ETF follows the same dividend growth index as its sister fund. Still, it devotes more capital to higher quality blue-chip companies with strong track records of increasing payouts over time, in addition to holding some of their lower-quality peers. Consequently, DGRW has an expense ratio of 0.40% vs SDY’s 0.38%.
- Vanguard High Dividend Yield Index Fund Admiral Shares (VHDYX)
The VHDYX tracks the MSCI US Investable Market High Dividend Yield Index, including all stocks in the MSCI US Investable Market Index with a higher-than-average distribution yield. As you can see, the fund has relatively low exposure to Dividend Aristocrats given its focus on high yielding securities, but it does include some strong mature businesses that have strong catalysts for dividend growth over the next decade.
Disclaimer: Our content is intended to be used for informational purposes only. It is very important to do your own research before making any investment based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find on this article and wish to rely upon, whether for the purpose of making an investment decision or otherwise.
