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A Guide to Dividend Aristocrat ETFs

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Sweta Killa
·5 min read
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Dividend investing remains a popular strategy for investors even in the face of rising yields. Though it does not offer dramatic price appreciation, the strategy is a major source of consistent income for investors in any type of market.

This is especially true as dividend-focused products offer safety in the form of payouts and stability through mature companies that are less volatile to the large swings in stock prices. The dividend-paying securities are major sources of consistent income for investors when returns from equity markets are at risk. Further, these products are proven outperformers over the long term (read: 5 Market-Beating Dividend ETFs of 2020).

While there are plenty of options in the dividend ETF world, honing in on the dividend aristocrats could be the most beneficial way in the current market environment.

Why Dividend Aristocrats?

Dividend aristocrats are blue-chip dividend-paying companies with a long history of increasing dividend payments year over year. These generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis. Additionally, aristocrats tend to skew the portfolio to less volatile sectors and mature companies.

Additionally, these stocks have superior fundamentals that make dividend growth a quality and promising investment for the long term. These include a sustainable business model, a long track of profitability, rising cash flows, good liquidity, a strong balance sheet and some value characteristics. Further, a history of strong dividend growth indicates that dividend increase is likely in the future.

Investors should note that the dividend aristocrat funds offer more dividend growth opportunities compared to the other products in the space but might not necessarily have the highest yields. Further, these products lead to a healthy portfolio with a greater scope of capital appreciation as opposed to the simple dividend paying stocks or those with high yields (read: Guide to High Dividend Paying ETFs).

As a result, these products provide a nice combination of annual dividend growth and capital appreciation opportunity, and are mainly suitable for risk adverse long-term investors. For them, we have highlighted some popular ETFs that could be excellent choices:

Vanguard Dividend Appreciation ETF VIG

This is the largest and the most popular ETF in the dividend space with AUM of $54 billion. The fund follows the NASDAQ US Dividend Achievers Select Index, which is composed of high-quality stocks that have a record of raising dividend every year. It holds 212 securities in the basket with none accounting for more than 4.7% share. The fund charges 6 basis points (bps) in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Tap on Dividend Aristocrats ETFs for Impressive Returns in 2021).

SPDR S&P Dividend ETF SDY

With AUM of $17.2 billion, this fund provides well-diversified exposure to 113 U.S. stocks that have been consistently increased their dividend for at least 20 consecutive years. This can be done by tracking the S&P High Yield Dividend Aristocrats Index. Each firm accounts for less than 3.5% of assets. The fund charges 35 bps in fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
    
iShares Select Dividend ETF DVY

This fund provides exposure to the companies with a consistent five-year history of dividend payments. It follows the Dow Jones U.S. Select Dividend Index and holds 100 securities in its basket with each accounting for less than 2.9% of assets. The ETF has AUM of $15.7 billion and charges 39 bps in fees per year from investors. It has a Zacks ETF Rank #3 with a Medium risk outlook.

Schwab U.S. Dividend Equity ETF SCHD

With AUM of $18.1 billion, this product offers exposure to 102 high-dividend yielding U.S. companies that have a record of consistent dividend payments supported by fundamental strength based on financial ratios and ample liquidity. This can be easily done by tracking the Dow Jones U.S. Dividend 100 Index. The fund is well spread across components, with none holding more than 4.8% of assets. It charges 6 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook.

iShares Core Dividend Growth ETF DGRO

This fund provides exposure to companies having a history of sustained dividend growth by tracking the Morningstar US Dividend Growth Index. It holds 392 stocks in its basket with each accounting for less than 3.4% share. The fund has accumulated $15.9 billion in its asset base and charges 8 bps in fees per year. It has a Zacks ETF Rank #2 with a Medium risk outlook (read: 5 Best ETF Investing Ideas for 2021).

ProShares S&P 500 Aristocrats ETF NOBL

This product provides exposure exclusively to the high-quality companies that have not just paid dividends but raised them in at least 25 consecutive years, with most doing so for 40 years or more. It follows the S&P 500 Dividend Aristocrats Index and holds 65 securities in its basket, with each accounting for less than 2.3% share. NOBL has amassed $7.2 billion in its asset base. It has an expense ratio of 0.35% and has a Zacks ETF Rank #3 with a Medium risk outlook.

WisdomTree U.S. Quality Dividend Growth Fund DGRW

This fund tracks the WisdomTree U.S. Quality Dividend Growth Index and offers diversified exposure to U.S. dividend-paying stocks with both growth and quality characteristics like long-term earnings growth expectations, and three-year historical averages for return on equity and return on assets. It has gathered $5.3 billion in its asset base and charges 28 bps in fees per year from investors. The ETF holds 298 securities in its basket, with each accounting for no more than 5.3% share. It has a Zacks ETF Rank #3 with a Medium risk outlook.

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SPDR S&P Dividend ETF (SDY): ETF Research Reports
 
iShares Select Dividend ETF (DVY): ETF Research Reports
 
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