NOBL: Dividend Aristocrats ETF Review

Summary

• NOBL strategy and portfolio.
• Past performance.
• Valuation and quality metrics.
• An alternative.
• Looking for a helping hand in the market? Members of Quantitative Risk & Value get exclusive ideas and guidance to navigate any climate. Learn More »

Yuri_Arcurs/E+ via Getty Images

This dividend ETF review series aims at evaluating products regarding the relative past performance of their strategies and quality metrics of their current portfolios.

NOBL strategy and portfolio

The ProShares S&P 500^® Dividend Aristocrats ETF (BATS:NOBL) has been tracking the S&P 500 Dividend Aristocrats Index since 10/09/2013. Its 30-day SEC yield is 2.0% and the total expense ratio is 0.35%.

As described in the prospectus by ProShares, the underlying index "targets companies that are currently members of the S&P 500, have increased dividend payments each year for at least 25 years, and meet certain market capitalization and liquidity requirements. The Index contains a minimum of 40 stocks, which are equally weighted, and no single sector is allowed to comprise more than 30% of the Index weight. If there are fewer than 40 stocks with at least 25 consecutive years of dividend growth or if sector caps are breached, the Index will include companies with shorter dividend growth histories."

The index is reconstituted once a year in January and rebalanced quarterly.

Compared to its parent index S&P 500 (SPY), NOBL underweights technology, communication and overweights industrials, consumer staples, materials.

Sector weights - chart: author

The next table lists the top ten holdings with their weights and basic ratios. They represent about 16% of the portfolio value.

Ticker	Name	Weight	EPSgrowth %ttm	P/E ttm	P/E fwd	Yield%
NUE	Nucor Corp	1.72%	503.21	10.59	5.71	1.52
PNR	Pentair plc	1.70%	42.36	27.10	22.76	1.04
WST	West Pharmaceutical Services Inc.	1.68%	81.07	61.65	51.41	0.16
ALB	Albemarle Corp	1.65%	-29.57	61.67	56.86	0.75
BEN	Franklin Resources Inc	1.59%	10.37	14.30	9.48	3.65
PBCT	People's United Financial Inc	1.59%	35.04	10.32	11.40	4.58
AFL	Aflac Inc	1.58%	107.12	6.71	10.07	2.37
SPGI	S&P Global Inc	1.58%	-3.95	42.81	33.33	0.71
ADP	Automatic Data Processing Inc	1.57%	6.44	35.19	32.18	1.74
CVX	Chevron Corp	1.57%	139.54	55.19	15.52	5.22

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Ratios from Portfolio123

Regarding aggregate valuation metrics, NOBL is cheaper than the S&P 500. The largest difference is in the price/sales ratio.

	NOBL	SPY
Price/Earnings TTM	25.11	26.45
Price/Book	3.77	4.42
Price/Sales	1.76	3.15
Price/Cash Flow	15.74	17.56

Click to enlarge

Source: Fidelity

Past performance

Since inception in October 2013, NOBL has lagged the S&P 500 by 1.7 percentage point in annualized return with a similar risk measured in maximum drawdown and volatility (standard deviation of monthly returns).

	Annual.Return	Drawdown	Sharpe ratio	Volatility
NOBL	13.27%	-35.43%	0.92	13.25%
SPY	14.99%	-33.72%	1.02	13.62%

Click to enlarge

Data calculated with Portfolio123

The next chart plots the equity value of $100 invested in NOBL and SPY since NOBL's inception, reinvesting dividends.

Chart: author; Data calculated with Portfolio123

NOBL was almost on par with the benchmark until the third quarter of 2019, then it started lagging it.

Comparing NOBL with a reference strategy

In previous articles, I have shown how three factors may help cut the risk in a dividend portfolio: Return on Assets, Piotroski F-score, and Altman Z-score.

The next table compares NOBL since inception with a subset of the S&P 500: stocks with an above-average dividend yield, an above-average ROA, a good Altman Z-score, a good Piotroski F-score and a sustainable payout ratio. The subset is rebalanced quarterly like NOBL underlying index.

	Annual.Return	Drawdown	Sharpe ratio
NOBL	13.27%	-35.43%	0.92
Dividend Quality subset	14.19%	-32.53%	0.87

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Past performance is not a guarantee of future returns. Data Source: Portfolio123

NOBL slightly underperforms the dividend quality subset in return and drawdown, but outperforms by a short margin in risk-adjusted return thanks to a lower volatility. The ETF performance is real and this subset is hypothetical. My core portfolio holds 14 stocks selected in this subset (more info at the end of this post).

Scanning NOBL with quality metrics

NOBL holds 65 stocks. Six of them are risky regarding my metrics. These are companies with at least two red flags: bad Piotroski score, negative ROA, unsustainable payout ratio, bad or dubious Altman Z-score, excluding financials and real estate for which these metrics are less reliable. Risky stocks weigh 9% of the portfolio, which is acceptable. According to my calculations, the position-weighted average ROA is above the S&P 500 average: 7.9% vs 6.4%. The Altman Z-score and Piotroski F-score are a bit better than for the broad index: 3.9 vs. 3.3 and 5.9 vs. 5.8, respectively. These metrics point to a portfolio quality slightly superior to the benchmark.

NOBL vs. DGRW

The Vanguard Dividend Appreciation ETF (VIG) was my preferred benchmark for quality dividend ETFs until it changed underlying indexes recently. With a new strategy, I don't consider it a suitable reference of past performance, so my new dividend ETF reference is the WisdomTree U.S. Quality Dividend Growth Fund (DGRW). DGRW is close to NOBL in dividend yield (1.8% vs. 2.0%) and also in expense ratio (0.28% vs. 0.35%).

Since NOBL inception	Annual.Return	Drawdown	Sharpe ratio
NOBL	13.27%	-35.43%	0.92
DGRW	14.24%	-32.04%	0.98

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DGRW beats NOBL since inception by about 1 percentage point in annualized return. Moreover, maximum drawdowns and Sharpe ratios point to a slightly better performance relative to risk.

Conclusion

NOBL holds 65 large cap stocks with a long history of growing dividends. Combining a dividend growth strategy with an equal weight methodology makes a lot of sense. It results in a portfolio quality slightly superior to the S&P 500 according to my metrics. However, historical price analysis since inception shows that risk metrics are very similar to the benchmark and the return is inferior. This period (since 2013) covers only a bull market and it may not be representative of NOBL behavior in a full market cycle. NOBL is a good choice for investors seeking a passive dividend growth investment for their portfolio. However, I have a preference for DGRW, which implements a forward-looking idea of dividend quality (review here) and has slightly better performance and risk metrics. For transparency, a dividend-oriented part of my equity investments is split between a passive ETF allocation (including DGRW) and my actively managed Stability portfolio (14 stocks), disclosed and updated in Quantitative Risk & Value.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of DGRW either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[Larry Ev]

Fred, Great info, thanks!

[A-ASTON]

Please note that DGRO has easily outperformed NOBL for the past five (5) years.

[Tumblebug]

Plug in QQQ as comparison to these funds on total return charts www.etfreplay.com/...

[Ron1634]

@Tumblebug - Nice site.
Thank you!

[Larry Ev]

@Tumblebug Great website! Thank you!

[Investor Professor]

You might want to compare to SCHD and DGRO to give a more complete picture.

[Fred Piard]

@Investor Professor SCHD and DGRO are good products. We could compare it with dozens of dividend ETFs. I have reviewed a lot of them and DGRW is my preferred one for now (it was VIG until recently, but I don't like ETFs that change underlying indexes). All the best.

[Ron1634]

By dividend growth, NOBL is better than DGRW over 6 yrs

[Fred Piard]

@Ron1634 Thanks for your comment. My preference is based on total return, lower volatility and the quality filters which make DGRW more forward looking. My objective is total return with minimal risk, not income. Both are a good picks anyway. All the best.