(02/03/15) 'Noble' Returns from Aristocrats

Although my London office is across the park from Buckingham Palace, when it comes to investing, I prefer another kind of ‘aristocrat’—the kind you’ll find in the S&P Dividend Aristocrats Index, explains Nicholas Vardy in The Global Guru.

Launched in 2005, the Dividend Aristocrat’s strategy is unabashedly elitist. It invests only in dividend stocks with the most noble and unblemished bloodline of ever-increasing dividends.

Specifically, to be a Dividend Aristocrat, a stock must be a member of the S&P 500 and have a history of at least 25 years of increasing annual dividends. The current tally of companies meeting both requirements is 54.

The performance gap between common stocks in the S&P 500 and the noble stocks in S&P 500 Dividend Aristocrat Index actually is both lengthy and consistent.

Over the past five years, and ten years, and the difference is pronounced. The stocks of the S&P 500 have a five-year average total annual return of 14.8% and a ten-year total return of 7.36%.

In contrast, the Aristocrats have a five-year total average annual return of 17.4% and a ten-year total return of 10.3%.

Given the consistent, impressive outperformance of the Dividend Aristocrats, the next question for the individual investor is: How can I buy that index?

While there are a couple of ways to do this, I personally invest in this set of stocks through the ProShares S&P 500 Dividend Aristocrats ETF (NOBL), the only ETF that invests exclusively in the companies that constitute this index.

The 54 companies in this ETF are equally weighted. They are also diversified across a variety of sectors such as consumer staples, consumer discretionary, industrials, materials, and many others.

Unlike many dividend-oriented ETFs, NOBL does not have the majority of its exposure in financial, telecom, or utility stocks. In fact, the fund’s charter prohibits any single sector from making up more than 30% of its holdings.

With an expense ratio of just 0.78%, the cost to own the Aristocrats Index is like a glass of fine wine; expensive, but worth it. And it’s also well within the reach of a pedestrian investor.

For income-oriented investors, the fund’s 2.3% yield (as of Sept. 30) bests both the 10-year Treasury note’s current yield of 2.1% and the S&P Index’s yield of 1.8%.

The bottom line? If you want to put the investment power of the Dividend Aristocrats to work in your investment portfolio, then ProShares S&P 500 Dividend Aristocrats ETF is a fantastic way to guarantee yourself noble returns.