Dividend Achievers Vs. Dividend Aristocrats: Stock Royalty, But There's A Catch

An image of multiple stacks of coins Credit: Shutterstock photo

Dividend equities exert a magnetic attraction when the stock markets are rough, and they have grabbed ETF investors' hearts and wallets this year.

In the world of exchange traded funds, two popular indexing subsets are dividend achievers and dividend aristocrats. Both invest in stock royalty -- household names like AT&T ( T ) and Procter & Gamble ( PG ) that have strong and consistent track records of dividend growth. So what's the difference between the indexes?

Achievers have not missed a dividend increase in 10 years or more.

Aristocrats have not skipped a dividend increase in 25 years or more.

In either case, it's no mean feat. Few companies on the stock market today can boast the same. Such a dividend history is often the mark of a quality company, with revenue, profits and cash flow to match.

But whether an index holds dividend achievers or dividend aristocrats can have a big effect on a fund's profile.

Vanguard Dividend Appreciation ( VIG ) tracks the Nasdaq U.S. Dividend Achievers Select Index. It holds 185 stocks, each of which has grown dividends annually for 10 years or more.

ProShares S&P 500 Dividend Aristocrats ( NOBL ) holds 50 stocks, a smaller list that reflects a higher barrier to entry -- each holding has raised dividends every year for 25 years or more.

They're both top-notch funds in their category, but VIG offers greater diversification, while NOBL may offer a shot at owning companies more likely to continue increasing dividends in the future.

SPDR S&P Dividend ( SDY ), which invests in dividend aristocrats from the S&P Composite 1500, has jumped 13.9% year to date through Sept. 14.

By comparison, SPDR S&P 500 (SPY), a proxy for the broad U.S. market, is up 5.6% in the same period.

The former has also produced better annual average gains over the past three-, five- and 10-year periods.

IBD'S TAKE:Income investors would do well to understand the nuances of dividend yield, dividend growth and dividend stability, as explored in thisstory about steady AT&T .

This year's best-performing dividend ETF is ProShares S&P MidCap 400 Dividend Aristocrats (REGL).

REGL has gained 19.9% through Sept. 14. The fund launched in February 2015 and has grown to $169.5 million in assets. It's the first ETF to tap the dividend-growing companies in its parent midcap index.

The underlying S&P MidCap 400 Dividend Aristocrats Index holds a minimum of 40 equal-weighted stocks and rebalances quarterly. Each holding must have increased dividends each year for at least 15 straight years.

Dividend growers have been able to withstand repeated market turmoil and still deliver strong returns with lower volatility, according to ProShares.

REGL yields a mere 1.35% -- less than SPY's 12-month yield of 2.01%. Like many dividend growth funds, it's less of a play for dividend income and more of a play for quality companies whose stock prices are likely to appreciate over time, while giving investors a smoother ride than the broad market.

VIG yields 2.08%, SDY 2.29% and NOBL 1.79%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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