How Does NOBL Compare To Others In This Category; SDY, VIG And WDIV?

Matt Thalman - Contributor - ETFs

Today I would like to answer a question posed by you, a reader. A few weeks ago I mentioned one of my favorite ETF's the ProShares S&P 500 Dividend Aristocrats ETF (PACF:NOBL) and a reader named jab commented on the article and asked a question. Jab said,

"Thanks for the info on NOBL. Wasn't familiar with the term/category "dividend aristocrats." How does NOBL compare to others in this category like SDY, VIG, and WDIV?"

So, I would like to take some time and answer this question and give a little more detail on the different metrics I look for when trying to find the best ETF's to invest in when comparing similar category ETFs.

The four different ETF's we will be comparing today are the ProShares S&P 500 Dividend Aristocrats ETF, the SPDR S&P Dividend ETF (PACF:SDY), the Vanguard Dividend Appreciation Index Fund (PACF:VIG), and the SPDR S&P Global Dividend ETF (PACF:WDIV). So, let's get to it.

ETF Returns vs. S&P 500
For comparison purposes, S&P 500 is up 6.61% year-to-date and 9.35% average over 3 years

A quick look at the above chart and you may be asking why I like NOBL more than some of the others mentioned above. First off I would like to make it clear that all the ETF's mentioned above are good investment options, but with most investments, a lot of it comes down to your personal preference and what you are comfortable with. Furthermore, while one investment makes a ton a sense for one investor, it may not be a good option for another.

When we are comparing the ETF's mentioned above, NOBL checks off all of the boxes I am looking for in this type of investment, a solid, quality, dividend paying option. To me personally, NOBL is a good option for investors who are looking for safer investment options (both those mentioned above, other sector ETF's and the S&P 500) that they can count of for some yield and some amount of investment return.

So why do I think that? First off NOBL has a reasonable expense ratio, not the lowest, but also not the highest out of the bunch mentioned above or the industry in general. Its returns, both year-to-date and over the last three years are again, not the highest, but also not the worst.

But once we start to look up the makeup of NOBL and the others, I believe NOBL really begins to stand out from the crowd. NOBL is only made up of 50 different stocks and each company's value within the ETF is roughly the same, around 2%. This gives the ETF a lot of balance, which helps protect investors from any one stock really hurting the portfolio as a whole. While some can argue that it also limits the value appreciation value of the ETF, you need to remember that I mentioned NOBL is a good investment for those looking for 'safer' more reliable investment options.

The ETF's with a large number of holdings, have to spread out their assets more, giving each stock less value and therefore making it less likely that one stock can really help or hurt the portfolio, unless the portfolio is unbalanced, as we see with most ETF's.

For example, while VIG has 185 different holdings, its top ten holdings make up more than 30% of the ETF's value. That means if you buy VIG, and one of those top ten holdings tanks, you're going to really feel the pain. If a top ten holding in NOBL tanks, it only makes up for 2% of the portfolio and it wouldn’t hurt your investment nearly as much. SDY is not quite as overweighted towards the top ten holdings, 17%, but if SDY was like NOBL, the top ten holdings would make up right around 10%, not 17% of the portfolio.

In addition to the weighting of each stock that makes up an ETF, the actual stocks within the ETF matter immensely. NOBL is made up of 50 stocks, and in order to be one of those 50 stocks, you have to meet a number of strict guidelines. First, you have to be a member of the S&P 500. This means that only large capitalization blue-chip companies will be in the portfolio. This helps lower the risk of you owning a fly-by-night stock or a company nearing financial trouble, as they will usually have good access to the credit markets.

Next, each stock within NOBL must be a dividend aristocrat. For a stock to be considered a dividend aristocrat, a company must have increased its dividend amount every year for at least the last 25 years. It does not matter how much the increase was each year, but there has to be some increase every year for 25 years.

The 25-year mark to me is very important because it shows some key traits I like to see in a company. First, it shows the company has a culture of giving back to shareholders and even though some different CEO's and board members have come and gone throughout the 25 years, the culture of paying and increasing its dividend has held strong. This shows the company has a history of hiring good management. The 25 year period also shows the company can ride out poor economic conditions regardless of how long, short, or serious they are.

NOBL is again the only ETF mentioned above built this way. SDY is similar but holds companies that have increased their dividend for at least 20 years and also pulls from a larger pool of stocks, the S&P Composite 1500. This leads to pulling stocks with much lower market cap's, increasing the risk. SDY also looks for the highest dividend yielding stocks, again increasing risk because some of these companies may be stretching themselves just to get a really high yield.

VIG and WDIV only hold stock of companies that have increased their dividend for at least 10 years, a much easier accomplishment than 25 or even 20 years and not a true indication of a strong long-term business or financial stability.

As I mentioned above, each investor needs to find what they value the most in an investment; return, yield, safety, etc. Age, goals, the purpose of the investment and a million different factors will all change what one investor is looking for. For myself, NOBL checks more boxes than the competition, and that’s why it's one of my favorites, but it may not be yours.

Matt Thalman Contributor - ETFs
Follow me on Twitter @mthalman5513

Disclosure: This contributor did not hold a position in any of the aforementioned securities at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from for their opinion.

One thought on “How Does NOBL Compare To Others In This Category; SDY, VIG And WDIV?

  1. Matt, I'm a bit late on the comment, but thanks for this write-up based on my question, it's very useful.

    I'm going to take a closer look at NOBL and SDY.

    I like that SDY is made of a bigger basket with a its top 10 accounting for a smaller percentage. That it draws from the S&P Composite 1500 (rather than the S&P 500) doesn't bother me i don't think. Some component stocks will have smaller market caps, but it seems to me that there's quality control provided by the requirement of a 20-year track record of dividend increases.

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