Some dividend-paying stocks stand out from the pack because of the consistency with which they have rewarded investors. Dividend Kings are the cream of the crop of dividend stocks, and dividend investors often like to pick from this select group. But you don't have to choose anymore. Roundhill S&P Dividend Monarchs ETF (KNGS -0.31%) gives you access to them all in a single investment vehicle.
You can buy Dividend Kings one by one
The Dividend Kings list comprises companies that have increased their dividends annually for 50+ years. A company doesn't build a record like that by accident. These are, by and large, well-run companies that have clearly placed a big emphasis on returning value to investors via dividends. There aren't many Dividend Kings. However, for income investors looking to hone in on the best dividend stocks, this small fishing pond is a great starting point.
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The list of stocks spans a broad spectrum of Wall Street, including industrials, utilities, consumer staples, healthcare, retail, and real estate, among others. The list includes high-yield stocks and low-yield stocks. Companies with fast and slow dividend growth rates. And there are names you'll know quite well, like Walmart (NYSE: WMT), and some you probably won't recognize, like Black Hills Corporation (NYSE: BKH).
There's plenty of room to cherry-pick the Dividend Kings you like best to create the most appropriate portfolio for you. But what if you don't want to do that? A very good case can be made for buying the whole Dividend King list to ensure you have a diversified portfolio of companies across the broadest possible set of metrics and characteristics. Plus, it would just be easier to buy them all instead of trying to pick out the winners (a task you may not succeed at).
Now you can buy "all" the Dividend Kings at once
Trying to buy all the stocks on the Dividend Kings list yourself isn't impossible, but it would require a fair amount of effort. More than 40 companies have increased their annual dividends for 50+ years. Then you actually have to keep up with the list, adding newcomers every year and ditching any company that hasn't increased (or worse, has cut) its dividend. A better option if you want to just own them all would be Roundhill S&P Dividend Monarchs ETF.
This exchange-traded fund (ETF) isn't exactly a pure list of Dividend Kings. Some rules lead to a slightly smaller investment universe. For example, only stocks in the S&P Composite 1500 are eligible for inclusion. That's a big universe, but it does not include all available stocks.
Then, there's a market cap requirement of $2 billion upon inclusion in the ETF and $1.5 billion once added (sinking below that figure will result in the stock being sold). Stocks must also have a $5 million average daily trading volume to be included ($4 billion after inclusion). And then there's the requirement of 50+ years of annual dividend increases.
Roundhill S&P Dividend Monarchs ETF currently has 36 holdings. That should be close enough to the full list for most investors.
The expense ratio is a little on the high side at 0.35%. However, you will save yourself a lot of commissions and hard work, so for more passive investors (and those who just like to keep their lives as simple as possible), the cost will probably be worth it. That said, the ETF only started trading on Nov. 3, 2023, so there's not a lot of history to go on here. You are, essentially, buying a concept.
Which brings us to what might be the most important issue for investors to keep in mind. Roundhill S&P Dividend Monarchs ETF uses dividend yield to weight its stocks. There's a bit of a complicated structure, but the outcome is that the highest-yielding Dividend Kings are the largest holdings. Depending on your investment desires, this could be considered good or bad.
It will increase the ETF's yield and give the index a value bias but could put you into the Dividend Kings most at risk of falling off the list. It also will likely end up underweighting the Dividend Kings with the fastest dividend growth rates. Of all the facts above, this one is probably the most salient as you decide whether you want to own Roundhill S&P Dividend Monarchs ETF. If the weighting method doesn't fit well with your investment goals, you probably shouldn't buy this fund.
A great idea, but will it catch on?
The ability to easily buy a portfolio of Dividend Kings is a wonderful idea, and Roundhill S&P Dividend Monarchs ETF is a welcome addition to the dividend ETF world. That said, the ETF is basically brand new and still very small. There's no guarantee it will find broad acceptance among dividend investors.
Given that it is an index fund, there's no reason to rush out and buy it. You could wait to see more uptake among investors. But if you like dividend stocks with long histories of increasing their dividends, this new ETF is one you should probably keep on your radar.