Never forget these two axioms:
Money frees us, but its pursuit may enslave us.
It’s not how much you have at the end; it’s how much you could have made.
A good friend of mine (and a very savvy investor) pointed out that SDY is not the only Dividend Aristocrat fund available which is both true and false simultaneously.
Sarcastic Reader: Uh…what now?
PWT: It’s the Schrodinger’s Cat of the financial world.
Realize again what the Dividend Aristocrats are (companies who have increased their dividends for 25-49 consecutive years, but are only in the S&P 500 as opposed to Dividend Champions who have the same dividend history as Dividend Aristocrats, but are not necessarily in the S&P 500—so there are 50 Dividend Aristocrats and 115 DIvidend Champions for 2018) and then let’s take account of what funds are out there to help mimic their earnings potential.
- The first one is actually the only true Dividend aristocrat fund ProShares TR/S&P 500 Aristocrats ETF (NOBL) because it is the most strict in what it allows as an investment—only tur Dividend Aristocrats. The upsides are that these are equally weighted with each company making up 2% of the fund and the expense ratio is quite cheap at 0.35%. However, there are a few problems here—the fund has been around for 5 years (since late 2013), the dividend yield is only 1.6%, and thusly (it’s axiomatically true that you cannot sound stupid and win any argument when using the word ‘thusly’) has underperformed the market at times and certainly the Dividend Aristocrats themselves. Of note, earlier this year, all of the stocks in the portfolio have an average PE ratio of approximately 21.
- The SPDR ETF (SDY) invests in any company that increases its dividend yearly for at least 20 consecutive years therefore it’s not quite Dividend Aristocrats only, but mostly. The dividend yield is 2.5% with a an expense ratio of 0.35%. It is the only Dividend Aristocrat fund that has been around for over a decade. And the returns over the last ten years has been over 10%.
- The Vanguard Dividend Appreciation ETF (VIG) has invested in a total of 182 stocks, but is comprised of only dividend Achievers (companies that increase their dividends yearly for 10-24 years). The expense ratio is only 0.08%, but the dividend yield is only 1.94%. This combination leads to a radically different rate of total return of 3.12% this year which is below the average rate of inflation (3.3% remember?) (and that’s before you even subtract out the expense ratio).
- The iShares Select Dividend ETF (DVY) has 98 stocks in it, all of which are Dividend Challengers (ie, companies that increase their dividends yearly for 5-9 years consecutively). It has a dividend yield of 2.81% with an expense ratio of 0.39%. The 10 year total return (before fees/taxes) was 10.28% and was 8.43% since inception of the fund (2003).
- There are many other funds that are comprised of dividend payers, but realize virtually none of these are actually comprised of true Dividend Aristocrats as detailed above therefore your returns can be quite different than that of the Dividend Aristocrats. So do your research (even preliminary stuff as above).
I’d love to hear from any and all of you about your thoughts, so we can all learn from one another.
Please spread the word about this blog to your friends (real and virtual), family, and colleagues. Talk to you soon.
Until next time…