Three dividend ETFs offer income and growth opportunities that could entice investors seeking strong total returns with reduced risk.
The three dividend-paying exchange-traded funds (ETFs) share commonalities but include variations that add a bit of differentiation. Dividend equities also provide investors with reduced risk, since market pullbacks typically are less brutal to stocks and funds that pay income.
Stocks and funds that consistently pay dividends tend to be less volatile, since the income keeps flowing even if the share price drops. The dividends typically are at least quarterly but sometimes as often as monthly. With broad-based dividend ETFs, the wide range of holdings invariably will pay some monthly dividends along with the quarterly ones.
Three Dividend ETFs Offer Income and Growth: SPYD
Stocks that pay dividends essentially provide a cash bonus to investors. For those who worry about the ups and downs of technology stocks, dividend-paying equities offer a more conservative alternative.
SPDR Portfolio S&P 500 High Dividend ETF (NYSE ARCA: SPYD) is one of the three ETFs growth and income opportunities that can be viewed as “flight-to-safety” choices. Dividend ETFs like SPYD provide exposure to stocks that have a history of offering dividend payouts in all types of economic conditions.
Jim Woods, who heads the Successful Investing newsletter, recently wrote favorably about SPYD. He is known for using technical analysis for signaling when to be buying and selling stocks based on the market’s current movements.
Jim Woods leads Successful Investing.
Three Dividend ETFs Offer Income and Growth: Income Adds Traction
With the risk of a recession in 2024, dividend ETFs could prove to have traction to withstand the deep drops that sometimes roil the markets in turbulent times. SPYD tracks an index of the 80 highest-yielding dividend stocks selected from the S&P 500. The fund pays a current dividend yield of 4.5% that is measured by taking the latest dividend, multiplying it by the frequency of the payment and then dividing by the equity’s share price at the date of each rebalancing.
Unlike similar ETFs, SPYD does not include any dividend sustainability or quality screens. SPYD equally weighs its portfolio, instead of weighing it by yield like some income-focused funds. This approach provides what the fund manager describes as a fundamentally sound measuring stick to identify large-cap U.S. stocks with the strongest payout ratios to shareholders.
Launched in October 2015, SPYD has a thin expense ratio of just 0.07% and currently holds 77 stocks with a weighted average market capitalization of $47.49 billion and $6.95 billion in assets under management, and an expense ratio of 0.07%. Its top holdings, as of Dec. 14, are Seagate Technology Holdings PLC (NASDAQ: STX), NRG Energy, Inc. (NYSE: NRG), Keycorp (NYSE: KEY), Zions Bancorp (NASDAQ: ZION) and Fifth Third Bancorp (NASDAQ: FITB).
Chart Courtesy of www.stockcharts.com
As of Dec. 14, the fund is up 12.401% in the past month, 8.32% in the last three months, 4.36% so far this year and 2.40% in the last 12 months. As the results show, SPYD is gaining momentum.
Three Dividend ETFs Offer Income and Growth: DIV
A second dividend ETF is Global X SuperDividend US ETF (NYSEARCA: DIV). The fund’s managers seek to own the 50 highest dividend-paying stocks trading in the U.S. market, including traditional dividend common stocks, real estate investment trusts (REITs) and master limited partnerships (MLPs).
DIV seeks to hold companies with sizable dividend payouts, low relative volatility and a track record of paying out consistent dividends over the previous two years. Thus, that methodology gives DIV a strong dose of financials, energy and utilities.
Certain investors have continued to use dividend-paying stocks as a shield against uncertainty. Studies by Ned Davis Research and others have lent empirical support to this strategy, with scholars finding both domestic and international companies, whose dividends have risen annually for the past 20 years, outperforming companies whose payouts either stay flat or decline.
Top holdings in the DIV portfolio are Iron Mountain (NYSE: IRM), International Business Machines Corporation (NYSE: IBM), Universal Corp. (NYSE: UVV), USA Compression Partners LP (NYSE: USAC) and Cross America Partners LP (NYSE: CAPL). As of Dec. 14, DIV has dipped 2.53% year to date and 3.26% in the last 12 months, while climbing 5.04% in the past three months and 5.50% in the last month.
Chart courtesy of www.stockcharts.com
The fund has amassed $611.78 million in assets under management and has an annual expense ratio of 0.45%. DIV has 50 holdings and offers a current dividend yield of 6.73%.
Three Dividend ETFs Offer Income and Growth: PEY
A third dividend-paying ETF is Invesco High Yield Equity Dividend Achievers ETF (PEY). This smart-beta index fund selects 50 of the highest-yielding dividend stocks from the NASDAQ U.S. Broad Dividend Achievers Index. With a decade-plus track record of raising dividends, PEY is worth considering for one’s portfolio. It may lag other equities amid strong markets, but it performs well during periods of low or negative equity returns.
PEY provides monthly dividends and has continually increased its payouts in the past 10 years. The fund invests at least 90% of its total assets in stocks with dividend increases to ensure consistent payout growth.
PEY is selective about its holdings. To earn a spot in PEY, companies must have a good track record — boosting their annual cash dividend payouts for the last 10 consecutive calendar or fiscal years. Plus, companies must meet a minimum market capitalization of $1 billion to be eligible for inclusion. The index is reconstituted annually and rebalanced quarterly on a rigorous schedule.
Geographically, PEY is concentrated with 97.87% of holdings based in the United States and the rest based in Switzerland (2.13%). Stay alert when investing in dividend ETFs, since there is risk and the potential for losses from time to time.
PEY’s top holdings feature Universal Corp (NYSE: UVV), KeyCorp (NYSE: KEY), Altria Group Inc. (NYSE: MO), Verizon Communications (NYSE: VZ) and Trust Financial Group (NYSE: TFC). As of Dec. 14, PEY has climbed 8.25% in the last month, 5.70% in the past three months, 5.97% year to date and 6.47% for the past 12 months.
The fund has $1.3 billion in net assets under management, and an expense ratio of 0.52%. Its current dividend yield is 5.12%. PEY’s price-per-earnings (P/E) ratio recently reached 10.71.
Chart courtesy of www.stockcharts.com
Three Dividend ETFs Offer Income and Growth: Cash Machine
Another high-income sleuth is Bryan Perry, who heads the Cash Machine investment newsletter. High-yield debt, tactical debt, business development companies (BDCs), REITS, covered-call ETFs, covered-call closed-end funds, preferred stocks and utilities are all in the “sweet spot” for garnering very attractive yields against a backdrop of declining long-term bond yields, he said.
“We’re in a good place,” Perry wrote to his Cash Machine subscribers.
Bryan Perry has produced an 11.14% average dividend yield in Cash Machine.
Bryan Perry has produced an 11.14% average dividend yield in Cash Machine.
For investors looking for exposure to the markets but with a steady stream of income to go with it, the three dividend ETFs for an enticing combination of growth and income.
“We’re in a good place,” added Perry, who has an 11.14% average dividend yield in his Cash Machine investment newsletter.
For investors looking for exposure to the markets but with a steady stream of income to go with it, the three dividend ETFs for an enticing combination of growth and income.
Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, Guru Focus and other publications and websites. Holiday gift buyers should consider purchasing Paul’s inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The uplifting book is great gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others. Call 202-677-4457 for special pricing on multiple-book purchases. Paul, who can be followed on Twitter @PaulDykewicz, also is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper, after writing for the Baltimore Business Journal and Crain Communications.
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