Dividend Growth Investing
Why Consistency of Dividend Growth Matters
With anemic global economic growth, investors have become leery about U.S. companies' ability to grow earnings and increase dividends.
Indeed, S&P 500 earnings declined for the fourth consecutive period in the first quarter of 2016 and are on pace to deliver another negative growth rate for the second quarter. A potential consequence of this “earnings recession” is that future dividends could be at risk. Earnings are an essential driver of dividends, and ultimately returns, so there is good reason for concern.
But there's an exclusive group of companies that may provide an answer. The S&P 500 Dividend Aristocrats are high quality companies that have increased their dividends every year for at least 25 consecutive years. How are these companies able to continually grow dividends? One answer is by delivering earnings growth. The S&P 500 Dividend Aristocrats have delivered positive annual earnings growth for the first two quarters of 2016 in amounts that were substantially higher than the broad market.
Historically, the Dividend Aristocrats have grown their dividends on a more consistent basis and at a higher compound rate than the broad market, underscoring their quality and potential for strong performance. Since inception of the index, the Aristocrats have delivered higher returns with lower volatility than the S&P 500.1
For illustrative purposes only. Click here for fund performance.
1 Source: Morningstar, ProShares, May 2, 2005 – June 30, 2016. Index performance is for illustrative purposes only and does not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest in an index. Past performance is not a guarantee of future results.
2 Standard & Poor's, 12/2015. Regular dividends only.
In this lackluster economic recovery, if you're looking for high-quality companies that have consistently delivered dividend growth, consider the S&P 500 Dividend Aristocrats ETF (NOBL). NOBL tracks the S&P 500 Dividend Aristocrats Index, which focuses on the companies within the S&P 500 that have increased dividends every year for at least 25 consecutive years.