Dividend Aristocrats: Strong Returns and Winning Strategies for 2023

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The dividend aristocrats had an awesome month to round off the first half of the year. The ProShares S&P 500 Dividend Aristocrats ETF (NOBL) finished the month with an 8.08% gain, bringing its year-to-date return up to 5.72%. Not too shabby!

But let's not stop there, because the second half of the year is off to a fantastic start as well. NOBL is up 2.64% through July 27th, which sees its year-to-date return tick up to 8.51%. Now, that's some impressive performance!

I also want to give a shout-out to the individual aristocrats that are driving these returns in 2023. We have 26 dividend aristocrats beating NOBL through the end of June, and 39 of them are generating positive total returns this year. These guys are seriously outpacing NOBL, and some of the top performers are West Pharma, Pentair, and Grainger.

I'm always curious about how to identify the drivers of outperformance. So, I've come up with three strategies that theoretically could identify winning aristocrats and lead to better performance than the dividend aristocrat index.

The first strategy focuses on valuation, targeting potentially undervalued dividend aristocrats. This is a long-term approach that could take some time to see the rewards, but it's worth keeping an eye on. We've seen some undervalued picks like Target that could be promising in the long run.

The second strategy looks at dividend aristocrats that are expected to grow the fastest in the near future. It's based on historical correlations between earnings per share growth and share price appreciation. This strategy has been doing well recently and is showing some potential winners like Cincinnati Financial.

Finally, the third strategy is a blend of the first two, focusing on the fastest expected growth but only applied to undervalued aristocrats. It narrows down the best picks between the two strategies, and it's showing some impressive returns as well.

It's important to remember that investing in individual stocks carries more risk than investing in an index, so always do your due diligence. But these strategies are based on simple principles and are easy to understand and implement.

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