VIG - NOBL: Walgreens Gets The Boot But The Dividend Aristocrat Strategy Remains Flawed
2024-02-05 00:57:48 ET
Summary
- NOBL tracks the S&P 500 Dividend Aristocrats Index, selecting large-cap U.S. stocks with at least 25 years of consecutive dividend increases. Expenses are 0.35%, and AUM is $11.68B.
- Walgreens Boots Alliance was eliminated in 2024. While this change is positive, it highlights the weakness of relying on company management to control Index inclusion via dividend policies.
- NOBL's equal-weight approach compounds this issue. Despite worsening fundamentals, particularly low free cash flow margins, poor-performing stocks' allocations are boosted each quarter.
- The result is evident when examining NOBL against high-quality alternatives like VIG and SCHD. NOBL's free cash flow margins are 4-6% worse, and its overall sector-adjusted profit score is relatively weak.
- NOBL is a good, but not great, dividend ETF. I rate it a "hold" but suggest investors turn to VIG instead for better dividend growth, safety, and total return potential.
Investment Thesis
I last covered the ProShares S&P 500 Dividend Aristocrats ETF ( NOBL ) in December, reasoning that its stronger dividend metrics made it a better Dividend Aristocrats choice over KNGZ , which recently changed strategies. Still, the evidence indicates that its 25 years of consecutive dividend increases screen is insufficient to keep poor-quality stocks out, limiting its total return potential. Despite free cash flow margins stuck between 0-5% and the stock underperforming the SPDR S&P 500 ETF Trust ( SPY ) by 246% from 2014-2023, it took one year of stalled dividend growth for Walgreens Boots Alliance ( WBA ) to get the boot from the Dividend Aristocrats list in 2024. What followed was management announcing it was slashing its dividend by 48% last month, possibly leading to a second boot from the Dow this year. ...
NOBL: Walgreens Gets The Boot, But The Dividend Aristocrat Strategy Remains Flawed