I’ve really gotten intrigued by financial podcasts lately. In 2023, one of my goals, along with my 100 mile swim goal, is to cut out mindless and divisive television time, and try to replace it with something which offers value and has a more calming effect.
My TV time was minimal to begin with, but since it offers little value outside of the promise of an increased heart rate, I’m choosing to curb it down to about an hour a week. That said, when the Masters, the US Open (Golf) and Tour de France come on, I’ll have no problem breaking my ‘self-inflicted’ restriction.
One of my favorite Podcast subjects is Dividend Investing, and when searching for shows about it, I came across a great podcast called Longacres Finance. It’s very well done and provides a lot of good information.
One of the things I got from it was an introduction to the NOBL ETF. This is the exchange traded fund where all the underlying stocks are Dividend Aristocrats.
What are the Dividend Aristocrat Stocks
Dividend Aristocrats are stocks which have paid consistent and increasing dividends for at least 25 Years. These are your ‘household name’ stocks that are part of the S&P 500.
IBM, Clorox, Exxon Mobil, Chevron, and Stanley Black and Decker are just a few of the companies that are considered “Aristocratic’ by the finance community.
What Longacres Finance. introduced me to during his podcast was the NOBL ETF. Offered by Pro Shares, NOBL is an Exchange Traded Fund of 64 different publicly traded companies, which represent some of the most industry stalwarts. The NOBL ETF currently pays a nice 2.59% yield, and with it’s low expense ratio of .35%, it allows you to keep more of your money.
I like it, but I’m not an investor in NOBL
As a dividend investor, I admire NOBL, and think it is a great option for investors who prefer a ‘set it and forget it’ approach to investing, but that’s just not how I roll. I prefer to manage my own positions, and if I think getting out of a certain position to get into another adds value to my overall portfolio, then I’ll make the appropriate change.
NOBL is a great option for many investors. It’s very well-diversified, with investments in every financial sector of the market, which are all very Large-Cap Blue Chip companies.
What are Pro Shares
NOBL is managed by Pro Shares, an investment company founded in 1997 by Louis Mayberg and Michael Sapir. Considered small in the financial ecosystem, Pro Shares manages $60 Billion in assets. Compare this with the likes of Vanguard (8.1 Trillion) or Blackrock, (8.5 Trillion) and Pro Shares would be considered a ‘rounding error” against these leviathans.
But, small may be Pro Shares’ advantage. Small allows the fund’s managers to be nimble, and make portfolio changes quickly while at the same time keeping their investors costs low.
But, does Investing in NOBL offer a lower ROI than buying individual stocks?
I am an investor in a few of the underlying NOBL assets, such as; Johnson and Johnson, IBM, Chevron, and Proctor and Gamble. I chose the individual stock route mainly because I prefer getting paid a dividend more than 4 times a year, which is the frequency of NOBL’s payouts.
Economies of Scale
Investing in the individual underlying NOBL stocks does increase your overall risk. The probability of one company losing significant market share is far greater than having this happen to 64 of them.
Choosing NOBL mitigates risk, no doubt about it. But, you may be trading the potential for higher returns for the warm and fuzzy feeling of ‘broader diversification’.
Diversify the Yield
Owning individual stocks allows you to diversify your yield of each stock separately.
If you’re just getting yield from one ETF such as NOBL, and are reinvesting your dividend payment, then you’re limiting your repurchase dates to just 4 days a year.
Having positions in the 4 aforementioned NOBL holdings on the other hand, means you get 16 dividend payments throughout the year, rather than NOBL’s 4. This gives you 16 different reinvestment points which can increase your odds of reinvesting at better (or worse) prices over the long term.
I did a 2 year comparison of the Return on Investment of my 4 holdings VS the NOBL ETF and much to my surprise the individual holdings far out performed the NOBL ETF. I even made a video on it,
Starting out with a $10,000 investment on January 1, 2021 would have bought me 124.8128 NOBL Shares. In comparison the same $10,000, spread between my 4 stocks would have bought 15.8993 shares of JNJ, 20.779 shares of IBM, 29.36 shares of CVX, and 17.9006 shares of PG.
Here is a breakdown of how each stocks dividend yield performed over the two year (Jan 21-Feb 23) time frame.
And here is how NOBL performed during the same two year time frame:
Each of these 4 stocks offer a better yield than NOBL, not to mention owning them does avoid the cost of paying an Expense Ratio. And, since I’m very ‘long’ these positions, my expense of owning them is virtually non-existent.
For most investors a ‘basket’ of stocks such as those offered by Pro Shares is ideal. For me, I look forward to the next dividend payment and free money just brings joy to my day. So the more days I can add joy, the better.
This exercise was perhaps a bit skewed. Having a 108% increase in my fictitious Chevron position is hard to compete with. It’s important to assess your risk tolerance, perhaps depending on your age, and choose whether individual stocks are better for your personal situation, or should you just stick with funds such as Pro Shares. The great thing is there is no wrong answer.