Dividend aristocrats are popular names among income investors because of their long track record of growing their income and the fact that most of them are blue-chip names with a commanding market share in their industries. So, are the popular dividend ETFs like the SPDR S&P Dividend ETF (SDY) and ProShares S&P 500 Dividend Aristocrats ETF (NOBL) good investments?
What are SDY and NOBL ETFs?
The SDY is a popular fund with over $20 billion in assets under management. It is a fund that tracks the S&P High Yield Dividend Aristocrats Index, which focuses on companies that have grown their returns in the last 20 years. It has about 149 holdings, with companies spread across various sectors like industrials, consumer staples, utilities, and financials.
The top firms in the SDY ETFs are Verizon, Realty Income, Chevron, Abbvie, and Kenvue. It has an expense ratio of 0.35% and an expense ratio of 0.35% and a price-to-earnings ratio of 18, making it more affordable than the S&P 500 index, which has a multiple of 21.
The NOBL ETF, on the other hand, is more strict in terms of its positioning in that it tracks companies that have boosted their dividends for at least 25 years. The top companies in the fund are in the consumer staples, industrials, materials, financials, and health care. These firms include the likes of Abbvie, IBM, Coca-Cola, Eversource Energy, and Kenvue.
NOBLE ETf has 66 companies in its portfolio and a price-to-earnings ratio of 21.15, making it in par with the S&P 500 index.
Are dividend aristocrat ETFs good buys?
Dividend aristocrats attract mixed opinions among market participants. Proponents argue that these are good blue-chip companies that have thrived for decades. For example, companies like Verizon and Realty Income have been around for years. They have survived major events like the dot com bubble, the dot com bubble, and the Cold War.
However, critics argue that these dividend aristocrats are not the best companies to invest in because most of them are slow growers and are now facing substantial competition. As such, the argument is that investing in dividend aristocrats is a backward way of thinking. They recommend allocating cash to companies in the technology sector.
SDY and NOBL performance
The best way to evaluate dividend aristocrat ETFs is to look at their historical performance and weigh them against the benchmark funds like the S&P 500 and Nasdaq 100.
Data shows that the Vanguard S&P 500 ETF (VOO) had a total return of 94% in the last five years. The NOBL and SDY funds returned 50% and 45%, respectively, in that period.
The same has happened in the last 12 months as the VOO ETF has had about 22.3% in total returns. That is much higher than the 9.15% and the 12.2% that the NOBL and SDY returned in the same period. The char below shows similar results in the last three years.
VOO vs NOBL vs SDY performance
Therefore, while the SDY and NOBL have higher dividend yields than the S&P 500 and Nasdaq 100 indices, investing in the benchmark indices is a better thing to do.
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