No Dividend-Strategy ETFs Are Dividend Champions, But There Is One Contender (2024)

Recently, Brad Kenagy presented a wonderful article (The Best ETF For Dividend Growth Investors), in which he provided comprehensive descriptions of the 18 dividend-oriented ETFs with more than $1 billion in assets.

Brad covered, among other things, the underlying index for each fund, stock selection methodology, total-return performance, expense ratios, and dividend yields.

It’s been years since I studied dividend ETFs in detail. My earlier studies had led me to invest in two (SCHD and SPHD), and I hadn’t looked at the overall field since then. In the intervening years, several new dividend ETFs have been introduced, and of course the “old” ones have added years of performance.

Brad’s article led me to wonder whether any of the ETFs, if they were stocks, would qualify for the CCC compilation that many dividend growth investors regard as their first research source.

The CCC is the Dividend Champions, Contenders and Challengers spreadsheet. It tracks companies that have increased their dividends for more than 5 years in a row. “Champions” are stocks with 25-year streaks or longer. The CCC is updated monthly, for free, by Justin Law, who took it over from the late David Fish.

That’s what this article is about: If dividend ETFs were stocks, which ones (if any) would be on the CCC with dividend streaks of five years or more.

Background on ETF Dividends

Before getting started, we need to understand a few facts about ETF dividends.

First, ETF dividend payout amounts vary from distribution to distribution. Unlike a dividend growth stock that pays a steady dividend for a year and then raises it, ETF distributions constantly change in amount.

Here’s what I mean. This is a 10-year chart.

Johnson & Johnson’s (JNJ) dividend looks like a staircase, showing one increase per year, then steady payouts for the next 12 months, followed by the next increase. The pattern hasn’t varied for more than 50 years.

The orange line is NOBL, an ETF based on the Dividend Aristocrats. Visually, the line trends somewhat upwards, but every payout varies. It is impossible to tell whether every year (or 12-month period) totals more than the prior year. To determine that, you have to add up the individual amounts and compare them.

Because of their inconsistent payouts, one can only judge an ETF’s dividend growth record over 12-month periods. For this article, I decided to use calendar years, with the last full year being 2019.

In counting years of consecutive increases, I decided to count the first year of an ETF’s existence as Year 1 of increases, because that’s the way it is done on the CCC. If there has been a cut since then, that becomes irrelevant, as the cut sets the consecutive-increase clock back to zero.

An ETF’s yield cannot be calculated by annualizing the most recent payout and dividing by price. That’s the way it is done for stocks, but it doesn’t work for ETFs, the reason again being the varying payout amounts.

So for ETF yields, I used the last 12 months of payments divided by current price. That is a standard way to gauge an ETF’s yield. This method is often called “TTM yield,” where TTM stands for trailing twelve months.

Another thing to watch out for with ETFs is that they sometimes pay out monies other than dividends, such as capital gains. Those are ignored in this study of ETF dividends. Here’s an example, showing SPDR S&P Dividend ETF (SDY) as illustrated in Morningstar:

There is no comparable consideration with regular stocks, as the only time you get capital gains is if you sell shares of the stock. By contrast, ETFs are active portfolios, so sometimes they generate capital gains that are distributed to you (without your action or consent).

Finally, ETFs frequently declare a dividend near the end of the year, but its payable date is not until early the following year (say in the first week of January). After consulting with Justin Law and Daniel Hochman of Seeking Alpha, I determined that it is nearly universal practice among data providers to “assign” such dividends to the year they were declared, or the year in which their ex-dividend date falls, rather than the actual year of payment.

Justin does the CCC differently, conforming to calendar year payout amounts, because that is what the investor actually experiences. And of course, that conforms with calendar-year taxes too. He told me that he does make some exceptions in unique circ*mstances.

When I started this article, I was determined to hand-calculate calendar-year amounts. But after getting halfway through, I decided to revert to convention and use the “assigned years” utilized by data providers (and the ETFs themselves). I was finding that making the shift to calendar years only made a significant difference with one or two ETFs, and I feared that I was making mistakes in my manual calculations.

I did find one ETF where the conventional approach masked two calendar-year dividend cuts. I apologize in advance to anyone who wishes I had carried through with calculating actual calendar-year amounts. I also apologize for any data errors. If you find one, please note it in the comments.

CCC for ETFs

There isn’t really a CCC for ETFs, of course. For one thing, it would only be a “CC,” because no dividend ETF has been around long enough to compile a 25-year record of dividend increases.

But I present here the beginnings of what a CCC for ETFs might look like. The table below has several columns that CCC users will recognize, including consecutive years of dividend increases, as well as 1-, 3-, 5-, and 10-year dividend growth rates.

The table covers the same dividend-oriented ETFs as Brad’s article, those with more than $1B in assets under management. I also added SPY (S&P 500 tracker) for comparison, plus one other dividend ETF (PEY) whose assets are just under $1B.

Fun fact: SPY has more assets than the 19 dividend ETFs combined.

Most of the data comes from Seeking Alpha, which I spot-checked for accuracy, only finding a single ETF with seemingly incorrect DGRs. The last two columns come from ETF.com.

Observations and Conclusions

There are no ETF Dividend Champions.

There is just one Dividend Contender among dividend-oriented ETFs (DVY), making it into that category with 10 straight years of increases. The benchmark SPY also has 10 years of increases. SPY tracks the S&P 500, and I do not consider it a dividend-oriented ETF.

There are six Dividend Challengers with increase streaks of five to nine years. Of these, two (SCHD and DGRO) have never cut their annual dividend. They are the only two ETFs on the entire list with that distinction.

All the rest of the dividend ETFs are, um, Pretenders. They have all cut their dividend within the past five years, some as recently as last year.

Overall, the number of dividend cuts among dividend ETFs is stunning. Cuts during the Great Recession (or shortly thereafter in 2010) are not surprising, but 2013 through 2019? Few dividend growth investors suffered cuts in their own portfolios in those years.

The last ETF in the table, NOBL, has always been a curiosity to me. Made up of Dividend Aristocrats (S&P 500 stocks with 25-year increase streaks), it’s perhaps the last ETF you would expect to have dividend cuts, but it sports two in its short life (2017 and 2019).

Actually, if NOBL’s dividends were presented in the actual years they were paid, it would not show a cut in 2019. It paid more in calendar 2019 than in 2018. But, before you blame lazy data providers, note that the numbers are presented that way by NOBL itself.

(Source: NOBL Factsheet)

If you were running an ETF whose strategy was based on its stocks’ rising dividends, wouldn’t you want to play up the fact that the ETF’s own dividends were rising? I sure would. But NOBL’s management apparently sees things differently.

That reinforces an impression I got when I was analyzing dividend ETFs several years ago: ETFs based on dividend strategies don’t play up their own dividend performance. Often they make it hard to find distribution information, or they only give it for the past five years. I think it’s strange.

I think that the ETF industry – even when they offer dividend ETFs – wants to play the total-return game. That follows from the ubiquitous academic and financial industry’s fixation on total return as the only conceivable measure of investment success.

OK, let’s play that game. Here are the total returns over the past 1, 3-, and 5-years for the dividend ETFs from above. This data is from YCharts “total return price” function, so it includes dividend reinvestment. The list is ordered from high to low by 5-year total returns with dividends reinvested. The SPY benchmark is highlighted in blue.

The returns are not annualized, they are the total returns over each time period with dividends reinvested.

Thanks for reading, and good luck to all, no matter what your investing strategy may be.

David Van Knapp

I contribute to the Investing Group Dividends & Income Select, along with Mike Nadel, Jason Fieber, Greg Patrick, and Christian Phillips.

My mission is to help self-directed individual investors profit from stock investing. In addition to my work for Dividends & Income Select, I have authored eight e-books on dividend growth investing, along with countless articles and videos on investing for income.

I hold a BA in physics from Holy Cross College and a JD from Georgetown University. My wife and I live in Canandaigua, NY.