The dividend aristocrats concept is undoubtedly alluring to income investors.
Building an exchange traded fund around companies that have boosted dividends for a minimum of 25 consecutive years has helped make the SPDR S&P Dividend ETF (SDY) one of the largest U.S. dividend ETFs with over $12 billion in assets under management. SDY tracks the S&P High Yield Dividend Aristocrats Index, which is a high yield variation of the traditional aristocrats index. Nonetheless, the requirement for admission to SDY is a quarter century dividend increase streak.
The dividend aristocrats concept has also helped make the ProShares S&P 500 Aristocrats ETF (NOBL) one of the most successful ETFs to debut in recent months. Following a third-quarter 2013 debut, NOBL has pulled in almost $39 million just this year. [New Dividend ETFs to Consider]
There are other ETF avenues for accessing the dividend aristocrats,including the $336.1 million PowerShares Dividend Achievers Portfolio (PFM) . PFM tracks the NASDAQ US Broad Dividend Achievers Index, which requires a dividend increase streak of 10 years, but that is good enough to make the fund an “accidental” aristocrats destination.
PFM’s top-10 holdings, a group that combine for nearly a third of the fund’s weight, features nine members of the Dow Jones Industrial average and eight dividend aristocrats, though outliers IBM (IBM) and United Technologies are not slouches on the dividend increase front.
Pull IBM and United Technologies out and the dividend aristocrats in PFM’s top-10 lineup still account for about 26% of the ETF’s weight. At least five more consumer staples aristocrats combining for 5% of PFM appear in the ETF. Staples is the fund’s largest sector weight at almost 23%.
PFM is also chock full of industrial aristocrats, including 3M (MMM), Dover (DOV), Emerson Electric (EMR), W.W. Grainger (GWW) and Stanley Black & Decker (SWK). Industrial stocks with dividend aristocrat status combine for another 5% of PFM’s weight.
PFM is home to just nine health care stocks, but six combining for nearly 8% of the ETF’s weight are dividend aristocrats. Eight consumer discretionary names representing over 6% of PFM’s weight are also dividend aristocrats.
So at this point, it is fair to say PFM’s accidental aristocrat status is justified, but income investors will want to know if the fund’s dividend growth is legitimate, though it should not be forgotten that the Dividend Achiever index family had an impressive year in 2013, including the NASDAQ US Broad Dividend Achievers Index. [Big Returns From These Dividend Indices]
PFM paid a dividend of roughly 33 cents a share in 2007 and in a sign that dividend growth can work in even in the roughest environments, the fund’s payout was slightly north of 34 cents in 2008, according to PowerShares data. However, 2009 and 2010 saw retrenchment in PFM’s payout. The 2010 dividend was barely above 27 cents a share. PFM’s payout rebounded to about 38 cents in 2012 before checking in at around 37 cents last year, according to PowerShares data.
PowerShares Dividend Achievers Portfolio