A Dividend Aristocrat is a company in the S&P 500 (SPX) that not only pays a dividend but has also increased the size of its dividend payout for at least 25 years in a row. These are the types of prudent companies that care about shareholder returns that you want to invest in for the long term, and thanks to the ProShares S&P 500 Dividend Aristocrats ETF (BATS:NOBL), you can invest in them all using one ETF.
I’m bullish on NOBL due to its focus on high-quality companies that are committed to growing their dividend payouts over time.
What is the NOBL ETF’s Strategy?
NOBL describes itself as the “only ETF focusing exclusively on the S&P 500 Dividend Aristocrats—high-quality companies that have not just paid dividends but grown them for at least 25 consecutive years, with most doing so for 40 years or more.”
In addition to this dividend growth, NOBL praises the fact that most of its holdings are blue-chip stocks that boast “stable earnings, solid fundamentals, and strong histories of profit and growth.”
This makes a lot of sense — if a company has the ability to not only pay but also grow its dividend for 25 years in a row or more, it is likely to be a company on strong financial footing and with a strong underlying business.
There is a lot more to dividend investing than simply finding companies with high dividend yields. For example, a company may sport a high dividend yield but be at risk of reducing or even cutting its dividend entirely, meaning that this high yield is a mirage. Or, a stock could be a high-yield trap that has a high dividend yield but continually sees its share price decline year after year.
With these Dividend Aristocrats, you can be relatively confident that the vast majority of these companies are on sound financial footing and that they are likely to continue to increase their dividend payouts, going forward. These companies have proven their commitment to rewarding their shareholders with dividends over time and will likely continue to do so. Furthermore, once companies achieve the title of Dividend Aristocrat, they usually don’t want to lose it.
Aristocratic Holdings
NOBL offers investors a nice degree of diversification. It owns 67 stocks, and its top 10 holdings make up just 17.5% of the fund, leaving investors with very little concentration risk.
Below, you can see an overview of NOBL’s top 10 holdings using TipRanks’ holdings tool.
NOBL’s holdings are a strong collection of dividend stalwarts that have increased their dividend payouts year after year. Top holding General Dynamics (NYSE:GD) has a proud history of increasing its dividend payout for 29 straight years. At the same time, NOBL’s second-largest holding, AFLAC (NYSE:AFL), has increased its dividend payout like clockwork for 40 years in a row.
Further down the list of top 10 holdings, well-known blue-chip names like Walmart (NYSE:WMT) and Procter & Gamble (NYSE:PG) have increased their dividend payouts for 49 and 67 years in a row, respectively. ExxonMobil (NYSE:XOM) has been paying a dividend since 1882 and has increased its payout for 40 years in a row.
In addition to long track records of raising their dividend payouts, another thing that many of NOBL’s top holdings have in common is strong Smart Scores. The Smart Score is a proprietary quantitative stock scoring system created by TipRanks. It gives stocks and ETFs a score from 1 to 10 based on eight market key factors. A score of 8 or above is equivalent to an Outperform rating.
An impressive five of NOBL’s top 10 holdings feature ‘Perfect 10’ Smart Scores — ExxonMobil, AbbVie (NYSE:ABBV), Procter & Gamble, Cintas (NASDAQ:CTAS), and IBM (NYSE:IBM).
Perhaps even more impressively, NOBL is one of the rare ETFs that feature an ETF Smart Score of 10.
NOBL’s Dividend
You may be surprised that an ETF focusing on dividend stocks like NOBL has a dividend yield of just 2.3%. However, it’s important to note that this yield is still higher than the average yield for the S&P 500 (about 1.6%). Furthermore, NOBL’s payout should rise over time as the stocks it owns increase their own dividend payouts. NOBL has provided investors with solid returns through a mix of dividend payments and capital appreciation, as we’ll discuss below.
NOBL’s Past Performance
NOBL has provided investors with solid, though not eye-popping, returns over the years. Over the past three years, NOBL has returned 9.3% on an annualized basis, and over the past five years, NOBL has generated a return of 8.1% on an annualized basis. Since its inception in 2013, NOBL has returned 10.5% on an annualized basis.
These returns slightly lag those of a broad market S&P 500 ETF like the Vanguard S&P 500 ETF (NYSEARCA:VOO), which has returned 10.1% over the past three years and 9.9% over the past five years.
Still, NOBL’s double-digit annualized returns since its inception are respectable. An investor who put $10,000 into the fund when it began in 2013 would have an investment worth $26,106 today, illustrating the benefit of investing in dividend growth stocks over the long term and letting these gains compound.
Is NOBL Stock a Buy, According to Analysts?
Turning to Wall Street, NOBL earns a Moderate Buy consensus rating based on 92 Buys, 31 Holds, and 12 Sell ratings assigned in the past three months. The average NOBL stock price target of $115.08 implies 35.0% upside potential.
Is Its Expense Ratio Reasonable?
Another factor that investors should always take into account when making an investment decision on an ETF is its expense ratio. With an expense ratio of 0.35%, NOBL isn’t overly expensive, but it certainly isn’t cheap either.
This 0.35% expense ratio means that an investor allocating $10,000 into NOBL will be on the hook for $35 in fees during year one. Assuming that the ETF returns 5% per year going forward and maintains this expense ratio, this same investor will pay $443 over the course of 10 years. So, as you can see, these fees add up over time. That said, NOBL is more or less in the middle of the road when it comes to its expense ratio.
The Takeaway: A Reliable ETF
This isn’t the type of investment that is going to double in short order or blow the doors off of the competition. However, it’s a steady ETF that has produced solid returns over time and has a portfolio of strong dividend growth companies with reliable dividend payouts, making it a solid and relatively safe choice for investors. Additionally, the high upside potential suggested by its average price target and its Perfect 10 Smart Score both boost its appeal.
