5 Dividend Aristocrat ETFs For A Growing Retirement Income

Dividend Aristocrats

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These ETFs can provide both the income and the growth needed in retirement

The average retirement lasts for 18 years in the United States. Hence, when investing for retirement, investors need to consider how inflation will affect their income. Allocations into retirement stocks should be set with income in mind.

401k investing will often limit choices. But if a fund allows it, one good strategy for this issue is to focus is on dividend aristocrats. By most standards, dividend aristocrats are stocks that have increased their dividend for at least 25 consecutive years. This length of time shows that a company earns enough profit and exhibits enough stability to provide both income and safe levels of growth to investors. Also, because dividends increase over time, distributions will increase as well, allowing investors to keep pace with inflation.

Because of this strict criteria, only 53 stocks currently hold the dividend aristocrat designation. Some funds have taken liberties with the definition of this category, sometimes reducing the length of time to as low as 15 years. Still, the nature of these equities makes them some of the lowest-risk stocks. The following ETFs provide diversified vehicles to enjoy both the value appreciation and the dividend growth that come with these stocks.

Dividend Aristocrat ETFs:

ProShares TR/S&P 500 Aristocrats ETF (NOBL)

One such ETF is ProShares TR/S&P 500 Aristocrats ETF (BATS:NOBL). Its yield stands at 1.89%. Although the fund is down slightly year-to-date, it has also increased in value by over 8% over the last year. The fund has also appreciated by an average 9.28% per year in the previous three years. With its inception in late 2013, the fund has existed for about 4.5 years. Investors also pay a low expense ratio, only 0.35%.

The fund uses the most stringent interpretation of dividend aristocrat (the 25-year minimum standard). It owns a stake in all 53 dividend aristocrats, and none of its holdings exceed 2% of the fund’s assets.

Fund allocations do not necessarily reflect the overall market, however. This particular fund takes larger than average stakes in consumer defensive and industrial stocks. McDonald’s Corporation (NYSE:MCD) and Kimberly Clark Corp (NYSE:KMB) make up the fund’s two largest holdings at almost 2% each. All of the stocks in the portfolio have an average price-to-earnings (PE) ratio of about 20.6.

Dividend Aristocrat ETFs:

ProShares S&P Midcap 400 Dividend Aristocrats ETF (REGL)

Since its inception in early 2015, the ProShares S&P Midcap 400 Dividend Aristocrats ETF (BATS:REGL) has continued to deliver strong returns. REGL earns a yield of 1.81%, and its distributions have risen steadily in its short history. The fund itself has appreciated by 8.65% over the last year and an average of 11.63% in the previous three years. It holds an expense ratio of 0.40%

Investors should note that this fund defines dividend aristocrat differently. REGL defines dividend aristocrats as stocks that have increased dividends for a minimum of 15 years. Hence, asset allocations vary. Financial services stands as its largest category, with 27.2% of the fund invested in these stocks. Utilities and consumer cyclicals make up 16.2% and 15.6% of the fund respectively.

As the name implies, the fund also focuses on the S&P Midcap index. Hence, its positions consist of smaller companies than other aristocrats. Cullen/Frost Bankers, Inc. (NYSE:CFR) and Carlisle Companies, Inc. (NYSE:CSL) make up its largest holdings. Each makes up just under 2.1% of the fund’s assets.

Dividend Aristocrat ETFs: 

SPRD S&P Global Dividend ETF (WDIV)

The SPRD S&P Global Dividend ETF (NYSEARCA:WDIV) takes a more global approach to dividend aristocrats. Only 20.42% of the fund is invested in U.S. stocks. However, the risks involved with global exposure give the fund a higher yield than many of its peers at 3.85%. Since its inception in 2013, the fund has struggled for growth. However, it returned just over 9% over the last 12 months. Its returns over three years have averaged just over 4.3%. Like its peers, it carries a relatively low expense ratio at 0.4%.

As mentioned earlier, the fund invests globally. About 40% of its funds are held in European equities. It allocates almost 15.5% of its assets in Asian and Australian stocks. Still, at a 15.6 PE ratio, the fund carries a lower valuation than its American counterparts.

Much of the funds go to companies involved in either financial services and utilities. These two sectors make up nearly half of the fund’s total assets. Portugal-based EDP – Energias de Portugal makes up its largest holding at 1.88%. Fortum Oyj, a Finnish firm, constitutes 1.85% of the fund’s assets.

Dividend Aristocrat ETFs: 

SPDR S&P Dividend (ETF) (SDY)

The SPDR S&P Dividend (ETF) (NYSEARCA:SDY) slightly modifies the dividend aristocrat definition, reducing the minimum standard to 20 years. However, its performance more than makes up for the added risk. Its yield stands at 2.37%. Also, it sacrifices little in return. The fund returned almost 7.6% in the last year and an average 10.1% over three years. Since the fund launched in 2005, it stands as the only dividend aristocrat fund with a more long-term track record. Its 10-year return stands at just under 10%.

The fund also carries an expense ratio of 0.35%, a level comparable to its peers. Also, it focuses only on U.S. equities. Its PE ratio stands at about 20.3. Moreover, the looser definition of dividend aristocrat allows for more diversification. The fund currently invests in 111 different companies.

SDY also has a more REIT-based focus than the standard dividend aristocrat stock.  Realty Income Corp (NYSE:O) and National Retail Properties, Inc. (NYSE:NNN) are its largest holdings.

Dividend Aristocrat ETFs: 

CBOE Vest S&P 500 Target Income ETF (KNG)

The CBOE Vest S&P 500 Target Income ETF (BATS:KNG) launched on March 26th of this year. Given its age, the fund is too new to show much in the way of returns. However, it trades just above the $40 per share inception price from late March.

The expense ratio stands higher than its peers at 0.75%. However, the fund seeks to produce a minimum 3% yield while matching the return of the overall S&P 500.

It invests heavily in consumer cyclicals and industrial stocks, which make up about 49% of the fund’s investments. Asset allocations also differ from NOBL as AbbVie Inc (NYSE:ABBV) and T. Rowe Price Group Inc (NASDAQ:TROW) make up its largest holdings. Each makes up slightly more than 2% of the fund’s assets.

KNG stands out by adding short call options. With the calls limited to only 20% of a stock’s market cap, these options will not serve as true “covered calls.” However, the fund’s managers believe it will enhance the fund’s value enough to deliver 3% distributions. Time will tell whether the strategy will work. With retirement in the balance and the fund lacking a track record, income investors should approach KNG carefully.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.

 

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Category: Lists of Dividend Stocks

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