Roundhill Investments has launched a new income-focused US equities ETF targeting an elite group of companies that have increased their dividends every year for at least five decades.
Dividend Monarchs represent an elite group of dividend growers.
The Roundhill S&P Dividend Monarchs ETF (KNGS US) has been listed on NYSE Arca with an expense ratio of 0.35%.
The investment thesis behind a dividend growth strategy is that these companies provide a reliable source of sustainable income while also being likely to exhibit favourable fundamental characteristics including consistent operating earnings, steady cash flow growth, and corporate discipline in volatile, low-growth markets.
Portfolio constituents include prestigious companies such as Procter & Gamble, 3M, and Coca-Cola, as well as other high-calibre ‘blue-chip’ names that have demonstrated resilience through a myriad of financial upheavals, including Black Monday, the Dot-com Bubble, the 2008 Global Financial Crisis, and the market tumult induced by the 2020 coronavirus pandemic.
Dave Mazza, Chief Strategy Officer at Roundhill Investments, commented: “The Dividend Monarchs represent the pinnacle of blue-chip resilience and consistency. These companies, having rewarded shareholders with rising dividends for over half a century, exemplify financial fortitude and long-term vision. The KNGS ETF offers investors the opportunity to tap into this elite group, providing both the potential for robust yield and the premium quality associated with enduring blue-chip names.”
Methodology
The fund tracks the S&P Dividend Monarchs Index which selects its constituents from the S&P Composite 1500 – a reference for large, mid, and small-cap US equities. Only companies that have increased their total dividend per share amount every year for at least 50 consecutive years are selected for the index.
If fewer than 25 companies are eligible for inclusion, the methodology progressively relaxes its dividend growth requirement until this threshold is met.
In a bid to enhance the strategy’s income-generation potential, constituents are weighted by indicated dividend yield subject to a single security cap of 5%. The index is reconstituted annually and rebalanced on a quarterly basis.
As of the end of October 2023, the index was comprised of 36 members. Significant sector representation within the index was evident in consumer staples at 27.7%, industrials at 19.4%, utilities at 15.5%, materials at 10.6%, and health care at 10.0%. Prominent individual stock weights were held by Leggett & Platt, 3M, and Federal Realty Investment Trust, each at 4.9%, followed by Black Hills at 4.8%, and Stanley Black & Decker at 4.0%.
The index was also yielding 3.51%, notably above that of its main dividend growth peers. In particular, the S&P High Yield Dividend Aristocrats Index, which is tracked by the $19.5 billion SPDR S&P Dividend ETF (SDY US), was yielding 3.28%. This index consists of 121 constituents from the S&P Composite 1500 which have increased or maintained their dividend payouts for at least 20 years. SDY also has an expense ratio of 0.35%.