Here's Why It Makes Sense To Bet On Dividend Aristocrat ETFs

Money, Profit, Finance, Business, Return, Yield

Wall Street had a tough time this week as inflation fears continued to tighten grip on the market. The Dow Jones Industrial Average has declined about 0.9% in the week and is heading toward the fourth negative week in the past five. Going on, the S&P 500 is also down 0.4% and on track to see a second negative week consecutively.

Investors have become increasingly worried since the latest data highlighted inflation levels rising at the fastest speed since 2008 in April. Notably, the Consumer Price Index rose 4.2% year over year in comparison with the Dow Jones estimate of a 3.6% rise, per a CNBC article. The five-year breakeven inflation rate — which measures expectations of inflation five years out — reached its highest since April 2011 on May 10 while the 10-year breakeven inflation rate — a measure of expectations of inflation in 10 years’ time — rose to its highest since March 2013.

Notably, market participants are apprehending that rising inflation may hurt corporate margins and profits. They also fear that the consistent rise in inflation may build pressure on the Federal Reserve to tighten the monetary policy, according to a CNBC article.

Moreover, retail sales in the United States were unchanged in April 2021, falling shy of market expectations of a 1% increase. This follows an upwardly revised 10.7% uptick in March when most households received the first round of stimulus checks.

It is also worth noting here that the rising concerns about the U.S. inflation levels have hurt U.S. consumer sentiments as well. Notably, the University of Michigan’s preliminary consumer sentiment index declined to 82.8 in May from 88.3 last month. The reading lagged even the most pessimistic forecast, per a Bloomberg survey. Consumers seem to be worried about a spike in gas, home and auto prices, per a Bloomberg article.

The measure of current conditions declined to 90.8 in May. Meanwhile, a gauge of consumer expectations fell more than 5 points to 77.6 in early May. Moving on, one-year inflation expectation climbed to 4.6% (the highest reading in a decade). Meanwhile, 43% of the survey participants have responded saying that prices may rise by at least 5%, per the same article.

The U.S. economy seems to be strongly rebounding from the coronavirus led-slowdown. Several factors like reopening of the economy, accelerated coronavirus vaccine rollout and solid fiscal support are raising consumer optimism.

Why Pick Dividend Aristocrats ETFs?

Dividend aristocrats are the blue-chip dividend-paying companies with a long history of increasing dividend payments year over year. Moreover, the dividend aristocrat funds provide investors with dividend growth opportunities in comparison to other products in the space but might not necessarily have the highest yields.

‘Dividend aristocrats’ or ‘dividend growers’ are mostly deemed to be the smartest way to deal with market turmoil. Notably, the inclination toward dividend investing has been rising due to easing monetary policy on the global front, and market uncertainty triggered by the pandemic and deceleration in global growth. The demand for these funds is mostly driven by their characteristic of being the major source of consistent income for investors when returns from the equity markets are uncertain.

These products also result in a strong portfolio, with a higher scope of capital appreciation as against the simple dividend-paying stocks or those with high yields. As a result, these products deliver a nice combination of annual dividend growth and capital-appreciation opportunity and are mostly good for risk adverse long-term investors.

Against this backdrop, let’s take a look at some ETFs that investors can consider:

Vanguard Dividend Appreciation ETF VIG

This is the largest and the most popular ETF in the dividend space with AUM of $60.10 billion. The fund follows the NASDAQ US Dividend Achievers Select Index, composed of high-quality stocks, with a record of raising dividends every year. It charges 6 basis points (bps) in annual fees (read: ETF Strategies to Trade the "Sell in May and Go Away" Adage).


This fund seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P High Yield Dividend Aristocrats Index. The index screens companies that have consistently increased their dividend for at least 20 consecutive years, and weights the stocks by yield. The fund has AUM of $20.20 billion. It charges 35 bps in fees per year (read: Vaccination & Economic Recovery to Boost These ETFs).

iShares Select Dividend ETF DVY

The fund provides exposure to broad-cap U.S. companies with a consistent history of dividends and tracks the Dow Jones U.S. Select Dividend Index. The fund has AUM of $19.29 billion. It charges 39 bps in fees per year (read: A Guide to 10 Most-Popular Dividend ETFs).

ProShares S&P 500 Dividend Aristocrats ETF NOBL

This fund seeks investment results, before fees and expenses that track the performance of the S&P 500 Dividend Aristocrats Index. It is 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. NOBL has amassed $8.68 billion in its asset base. It has an expense ratio of 0.35% (read: Dividend Hikes Are Back: Buy These ETFs).

iShares Core Dividend Growth ETF DGRO

This fund provides exposure to companies boasting a history of sustained dividend growth by tracking the Morningstar US Dividend Growth Index. The fund has AUM of $18.93 billion. It charges 8 bps in fees per year.

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