SPDR S&P US Dividend Aristocrats UCITS ETF (USDV) Price: £54.30

Assets: £3 billion

Social media giant Meta Platforms (META:NASDAQ) is making waves across the pond with news of a maiden dividend but for investors seeking not just a reliable source of income from the US but one that is actually guaranteed to grow each year, the SPDR S&P US Dividend Aristocrats UCITS ETF (USDV) is the ideal investment.

The fund is based on the S&P500 Dividend Aristocrats, a select group of companies which have all increased their payout every year for at least the last quarter of a century.

If an Aristocrat company cuts or even just holds its dividend unchanged for a year, it exits the index and the clock is reset.

The index was created in May 2005, and unlike the S&P 500 itself is equally weighted so each constituent is rated the same, without bias, and the basket is rebalanced at the start of every quarter.

Constituents must have a float-adjusted market cap of at least $3 billion as of the rebalancing date and a minimum daily liquidity of $5 million.

To ensure diversification, there must be a minimum of 40 stocks (today it stands at exactly 100) and no single sector can account for more than 30% of the index weight.

Since 1926, dividends have contributed nearly a third of total equity returns and the index is designed to capture sustainably rising dividends as well as capital growth potential.

As you would expect, the index looks very different to the underlying S&P 500 – for example, it doesn’t include any of the ‘Magnificent Seven’ tech giants, even though Microsoft (MSFT:NASDAQ) is the biggest index payer in real terms, handing $22.3 billion to shareholders last year, and Apple (AAPL:NASDAQ) is the third-biggest payer with $14 billion in dividends.

Even so, the Dividend Aristocrats ETF yields 2.28% compared with 1.39% for the S&P500, so there is a reasonable uplift in income, with a 0.35% ongoing charge.

Over the last decade the ETF has generated an average total return of 11.15% against 12.62% for the benchmark, although that figure is somewhat distorted by the outperformance of big tech stocks in 2023, when the benchmark produced a total return of 20.82% while the ETF managed just 4.61%.

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