Sometime in the coming months it is likely the number of
dividend ETFs available to investors will swell to 200 and
inflows to the existing products are about $90 billion since the
start of 2010. So yes, it is fair to say depressed interest rates
have sent income investors scampering into
and the ETFs those equities call home.
What many income investors really like is payout consistency
or knowing that their dividend stocks and ETFs have upwardly
sloping payout trajectories, even if the slope is gentle and
gradual. Some of the largest dividend ETFs oblige that
Two Under-Appreciated Dividend ETFs
In preparation of a market pullback, investors may want to put
some of those dividend ETFs on their shopping lists. "We believe
that when pullbacks happen, dividend stocks tend to fare better
than others because their yields provide downside protection.
While there are over one hundred stocks ranked by S&P Capital
IQ as Strong Buy or Buy that offer a 2.5% or greater yield,
an ideal way for investors to get diversification to many of
these stocks is through ETFs," said S&P Capital IQ in a new
S&P Capital IQ ran a screen for attractive opportunities
among large dividend ETFs, excluding sector-specific funds in an
effort to turn up diverse options.
"One thing investors should remember about dividends is that
they are completely discretionary, so a company can choose to
reduce or stop paying its dividend at any time. While S&P
Capital IQ does not recommend ETFs based on yield alone, the
consistency of dividend payments is a key component to the
S&P Capital IQ Quality Ranking we use in our research," said
the research firm.
The search turned up a mixture of popular ETFs, some of which
focus on dividend increase streaks
and some of which use other weighting methodologies.
The $12.4 billion SPDR S&P Dividend ETF (NYSE:
) garners an Overweight rating from S&P Capital IQ. SDY is
one of the largest U.S. dividend ETFs, indicating investors hold
a favorable view of gaining exposure to the S&P High Yield
Dividend Aristocrats Index, which only includes companies that
have raised their payouts for at least 25 consecutive years.
Top-10 holdings in SDY include Dow components AT&T (NYSE:
) and Chevron (NYSE:
) and staples giant Clorox (NYSE:
S&P Capital IQ also rates the Vanguard High Dividend Yield
Indx ETF (NYSE:
) Overweight. VYM's scant 0.1 percent annual expense ratio makes
the fund cheaper than 91 percent of rival ETFs and that might be
one reason why VYM had $9.5 billion in assets at the end of the
For a high yield ETF, VYM is surprisingly light on utilities
and telecom names as those sectors combine for 13.5 percent of
the fund's weight. Consumer goods lead the way at 15.6 percent
while financials, energy and health care combine for 37.3
percent. Top holdings include Exxon Mobil (NYSE:
), General Electric (NYSE:
) and Wells Fargo (NYSE:
VYM "seeks to track the performance of a benchmark index that
measures the investment return of common stocks of companies that
are characterized by high dividend yields,"
according to Vanguard
ETFs using alternative methodologies to weighting by yield or
dividend increase streaks are also viewed favorably by S&P
Capital IQ. The research firm has Overweight ratings on the
WisdomTree Dividend ex-Financials Fund (NYSE:
), the WisdomTree Total Dividend Fund (NYSE:
) and the WisdomTree LargeCap Dividend Fund (NYSE:
). Combined, those ETFs have over $3.1 billion in assets under
In particular, DLN and DTD offer investors solid exposure to
sectors that have recently been and are expected to be
dividend growth leaders
in the future. Translation: These ETFs have comparatively high
weights to consumer discretionary, financial services and
technology relative to other diversified dividend funds.
For example, DLN has a combine 27.6 percent weight to tech and
financials, two major contributors to S&P 500 dividend growth
over the past several years. Those two sectors combine for over
30 percent of DTD's weight. Those sector mixes have worked for
DLN and DTD because over the past three years, including paid
dividends, the funds are up an average of 65 percent.
All three of the WisdomTree offerings focus on proportionate
share of the aggregate cash dividends each component company is
projected to pay in the coming year, based on the most recently
declared dividend per share
For more on ETFs, click
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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