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Why have companies that consistently grow their dividends become popular with investors in recent years? What’s their allure? Generally, these high-quality companies have displayed durable business models with stable earnings, solid fundamentals, and strong histories of profit and growth. And as a result, strategies featuring companies with consistent dividend growth have exhibited strong performance characteristics under a wide range of market conditions.
Consistent Dividend Growth Strategies Have Outperformed, with Less Volatility
Investment strategies focused on consistent dividend growth have generally outperformed their benchmarks over the long term. For example, one of the most widely followed dividend growth strategies is the S&P 500® Dividend Aristocrats® Index, which focuses on companies with at least 25 years of uninterrupted dividend growth. Since its inception, the index has outperformed the S&P 500 with lower volatility.
Sources: ProShares, S&P Dow Jones Indices, Bloomberg, Morningstar, Kiplinger, “The Long-Term Allure of Dividends,” May 2019. NOBL performance from 10/9/13 (inception) to 12/31/19: NAV 27.45% one-year, 10.86% five-year, 12.98% since inception; Market Price 27.40% one-year, 10.83% five-year, 12.97% since inception. NOBL’s total operating expenses are 0.35%. Performance quoted represents past performance and does not guarantee future results. Investment return and principal value will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month-end may be obtained at ProShares.com.
Consistent Dividend Growers Have Captured More of the Market’s Gain, with Less of the Loss
Another way to evaluate how an investment strategy performs is to look at its up/down capture ratio—how it performs in both rising and falling markets over time. Strategies focused on consistent dividend growth have typically displayed highly favorable up/down capture ratios. For investors, that means an opportunity to participate in the long-term growth of the markets as they rise—but just as importantly, it also means the potential to retain more value when markets inevitably decline.
Let’s look at an example. Since its inception, the S&P 500 Dividend Aristocrats Index has captured 91% of the market’s gains, while experiencing just 76% of the market’s losses—contributing significantly to the long-term historical outperformance of this strategy.
“Up capture” measures fund or index performance relative to a benchmark when it has risen. Likewise, “down capture” measures performance when that benchmark has declined. Ratios are calculated by dividing monthly returns for the fund or index by the monthly returns of the benchmark during the stated period and multiplying that factor by 100.
Look for More Than Just Consistency—Focus on the Best Dividend Growers
It helps to remember that not all dividend growth strategies are equal. ProShares’ lineup of dividend growth ETFs invests in the best dividend growers, companies with the longest track records of dividend growth in their market segments.
Other strategies may only screen for companies that grow their dividends from as little as one year to the next. ProShares Dividend Growers ETFs and the indexes they follow, however, set a higher standard for consistency. For example, just 64 companies in the S&P 500—only 13%—currently meet the requirements of the S&P 500 Dividend Aristocrats Index. Many of them are household names you probably recognize for their quality characteristics, investment potential and staying power.
And not only are these companies rare, their commitment to consistent dividend growth is remarkable. Among the S&P 500 Dividend Aristocrats Index, more than half of its companies have over 40 consecutive years of dividend growth, and 10 of them have grown their dividends for more than half a century.
Source: S&P Dow Jones, as of 2/3/20. Historical dividend growth not recorded by S&P before 1962; companies with 57 years may have longer records. As of 2/3/20, weights for NOBL holdings with greater than 50 consecutive years of dividend growth are: 3M 1.56%, Coca-Cola 1.56%, Colgate-Palmolive 1.56%, Dover Corp. 1.56%, Emerson Electric 1.56%, Genuine Parts Co. 1.56%, Johnson & Johnson 1.56%, Procter & Gamble 1.56%, Stanley Black & Decker 1.56% and Hormel Foods 1.56%. Visit ProShares.com for a list of daily holdings for the fund.
ProShares Offers the Largest Lineup of Dividend Growth ETFs
Strategies focused on companies with the longest records of consistent dividend growth can help investors build durable portfolios that may perform well in both strong and turbulent markets. And ProShares offers more dividend growth ETFs than any other company.
Visit ProShares.com to learn about our $6 billion flagship fund, the S&P 500 Dividend Aristocrats ETF (NOBL), which is the only ETF that invests exclusively in the high-quality names of the S&P 500 Dividend Aristocrats Index. NOBL is the crown jewel in ProShares’ royal family of ETFs designed to enable diverse dividend growth allocations across an array of geographies and market segments.
If fewer than the minimum required number of stocks meet criteria, the strategies may include companies with shorter dividend growth histories.
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