This article was originally published on ETFTrends.com.
The ProShares S&P 500 Aristocrats ETF (CBOE:NOBL) tracks the S&P 500 Dividend Aristocrats Index, a benchmark that only includes companies that have boosted dividends for 25 consecutive years.
That dividend increase streak requirement means some companies may depart the index in a given year while others may qualify for admission.
“ Once a company pays a dividend, there's a strong likelihood it will continue to return cash to shareholders for years to come,” CFRA Research Director of ETF & Mutual Fund Research Todd Rosenbluth said in a note out Tuesday. “However, it is rare for company to raise its dividend for 20 or even 25 consecutive years. When it happens, we think these companies deserve recognition.”
As Rosenbluth notes, some new additions are coming to NOBL's underlying index.
“ S&P Dow Jones indices reviews existing and potential constituents to its Aristocrats indices on an annual basis based on updated dividend history,” he said. “On February 1, four stocks will be added to S&P 500 Dividend Aristocrats index and two others will join the S&P High Yield Dividend Aristocrats index that focuses on S&P 1500 securities.”
As of the end of 2018, NOBL held 53 stocks and as of January 28, nearly 45% of the fund's combined sector allocation was devoted to consumer staples and industrial stocks. The ETF could see its industrials weight increase as two of the new additions to the fund's underlying index – Dow components Caterpillar Inc. (CAT) and United Technologies Inc. (UTX) – hail from that sector.
United Technologies “raised its quarterly dividend by 5% to $0.74/share in October. CFRA Equity Analyst Jim Corridore forecasts 15% earnings growth for UTX to $9.00 per share for 2020. If achieved, it would result in the company paying out only 33% of earnings through dividends, providing ample flexibility for additional dividend increases,” according to Rosenbluth.
The other two additions to the S&P 500 Dividend Aristocrats Index are financial services names. Currently, NOBL allocates 10.08% to financials, making that the ETF's sixth-largest sector weight.
Insurance provider Chubb (CB) “raised its quarterly dividend in May by only 2.8% to $0.73/share, it was enough to extend the consecutive annual streak to 25 years. CFRA Equity Analyst Cathy Seifert projects the insurer will generate 13% earnings growth in 2019 to $11.45 per share, which would result in a modest 26% dividend payout,” said Rosenbluth.
CFRA has an Overweight rating on NOBL.
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