Dividend stocks and
had seen a lot of interest in the past 2-3 years as investors
searched for yield in the ultra-low interest environment. However
they have been out of favor of late, since the taper talk has
resulted in interest rates inching higher. Further, many sectors
that are high dividend payers-like utilities, telecom, and
staples-had become rather expensive and were punished by
investors worried about the rate increase.
Is Dividend Investing Dead?
Even though dividend stocks and ETFs have been experiencing
some headwinds in the face of taper talk, they should remain a
part of any investment portfolio focused on the long term.
Dividends have accounted for more than 40% of total returns from
the market over a long time horizon (over the past 80
3 ETFs for Rising Interest Rates
, dividend net increases (increases less decreases) rose $17.6
billion during Q2 2013, as 591 dividend increases were reported
during the quarter, up 17% from 505 dividend increases reported
during Q2 2012.
The trend is expected to continue in the coming months as most
large companies have huge cash piles on their balance sheet and
are in a position to increase payouts to shareholders.
Further due to the muddle-through growth environment, many
companies continue to avoid large scale capital expenditure and
M&A activities and rather prefer to return excess cash to
shareholder by way of dividends and buy backs. (Read:
Best ETFs from the market's top sector
In my view, ETFs that hold stocks with a high dividend growth
potential are much better for long-term investing than ETFs that
focus on high dividend yielding stocks.
How do Investors Reposition their Dividend
ETFs that have high exposure to utilities, telecom and REITs,
will likely remain out of favor with investors, amid rising
interest rates and worries about the Fed's plans for scaling down
its bond-buying program. It is time investors should focus on the
new dividend growth leaders-mainly technology and finance.
, S&P 500 dividends in 2H13 will be up 13% from last year,
with Technology sector leading in terms of change from last year,
followed by Oil & Gas and Banks. Markit dividend model
currently ranks Insurance, Banks and Technology sectors as most
During the last five years, technology sector has accounted
for more than 54% of the increase in dividends and financials
have accounted for the largest increase in last three years, per
3 ETFs for Manufacturing Renaissance
Below we have analyzed three ETFs that have excellent dividend
WisdomTree U.S. Dividend Growth ETF (
Investors looking for dividend growth opportunities while
staying diversified across sectors could consider the new
product from WisdomTree that has a has forward-looking dividend
The index uses both growth and quality factors with the
growth factor ranking based on long-term earnings growth
expectations and the quality factor ranking based on three year
historical averages for return on equity and return on
Further, the Index is dividend weighted to reflect the
proportionate share of the cash dividends each component
company is expected to pay in the coming year. The fund has a
30 day yield of 2.01% as of now.
Apple, Microsoft, P&G, Wal-Mart and Coca-Cola are the
top five holdings as of now. Among the sectors-the fund
has highest allocation to Technology, Industrials and Consumer
Discretionary sectors. It has an expense ratio of 28 basis
First Trust NASDAQ Technology Dividend Index (
Many companies in this sector already pay out very attractive
dividends; tech giants like Intel, Cisco, Microsoft and Apple,
have dividend yields higher than the S&P 500 index. And many
of them double-digit earnings growth potential once the economy
picks up steam.
Investors could consider TDIV, which seeks to focus on
dividend payers within the technology sector. For being included
in the index, apart from meeting minimum market cap and liquidity
requirement, the security should have paid a dividend and not
decreased its dividend within the past 12 months.
The index employs a modified dividend value weighting
methodology and the current top holdings of the fund are
Microsoft, Intel, Cisco, IBM and Apple. The ETF has a dividend
yield of 2.16% currently and charges an expense ratio of 50 basis
Vanguard Dividend Appreciation ETF
VIG holds stocks of high quality companies that have a record
of increasing dividends for at least 10 years. Launched in April
2006, the fund is now the largest dividend ETF, with $19.1
billion in AUM. With its high quality holdings and focus on
dividend growth, this ETF has been an excellent performer in the
past and will most likely continue to outperform.
The fund is currently home to 143 securities, with top
allocations to Pepsi, Coke and P&G. The ETF is heavily
weighted towards Consumer Goods (24%), Industrials (21%) and
Consumer Services (17%) sectors.
While the fund doesn't have a large exposure to Financials
(8%) and Technology (5%) sectors as of now, it is likely to
benefit from its high exposure to consumer related and
industrials sectors in view of their brightening outlook. Further
it has very low allocations to utilities (1%) and telecom (0.1%)
With an expense ratio of 0.10%, this is one of the cheapest
funds in this space. The dividend yield at 2.06% is not
remarkable, but this fund is better suited for investors who seek
long-term capital appreciation along with income and not just
high current yield.
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WISDMTR-US DV G (DGRW): ETF Research Reports
FT-NDQ TECH DIF (TDIV): ETF Research Reports
VANGD-DIV APPRC (VIG): ETF Research Reports
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