Seeking Alpha
Long only, portfolio strategy, dividend investing, ETF investing
Profile| Send Message|
( followers)  

In this article, I will be looking at ETFs that pay a dividend, and have grown the dividend payout over time. Prior to doing the research for this article, I had some assumptions that I thought would be true, but those assumptions turned out to be wrong. I assumed that my research would show ETFs like the Vanguard Dividend Appreciation ETF (NYSEARCA:VIG), and the SPDR Dividend ETF (NYSEARCA:SDY) would meet my goals below but it turns out they did not.

Goals

The goal of my research is to find ETFs that have paid a dividend for at least the last five years, increased the dividend payout in each successive year, and not lowered the yearly payout anytime. This is similar to ETFs, which only select stocks that have paid dividends for a minimum amount of years like 10 years for stocks in VIG. Since ETFs have not been around for relatively, long I chose the five-year period. To get my initial list of ETFs I used the following criteria using the Fidelity ETF screener.

Criteria

  1. Exclude Leverage & Inverse
  2. Greater than $100 Million in assets
  3. Greater than 20 Thousand 90 day average volume
  4. Inception date before 6/15/2008
  5. Dividend Yield Greater than 2.13% [Current 10 yr treasury rate]

I found 138 ETFs met the five criteria I put into the screener, so that was my initial list of ETFs I had to look at dividend growth for. For my data on dividends, I used the historical dividend data from dividendchannel.com, for each ETF, and for each year, I added up the dividends to see if the ETF increased its payout and did not decrease it.

Data

After tediously adding up the dividends for each ETF, I found that out of the 138 only 3 have increased their dividend every year for at least the last five years and not cut the dividend payout. Surprisingly, none of the ETFs I found had "dividend" or "income" in the name. The three ETFs that met my goals and criteria were: Vanguard Mega Cap Value ETF (NYSEARCA:MGV), iShares MSCI EAFE Small-Cap Index ETF (NYSEARCA:SCZ), and iShares S&P Global Consumer Staples ETF (NYSEARCA:KXI). In the tables and charts below, I will show the historical dividend payouts for each and compare them to the three largest dividend ETFs: VIG, SDY, and the iShares Dow Jones Select Dividend Index ETF (NYSEARCA:DVY).

Current Dividend Yields

MGV

2.20%

SCZ

3.47%

KXI

2.53%

VIG

2.50%

SDY

2.64%

DVY

4.14%

Dividend History

MGV

SCZ

KXI

12/20/2012

0.347

12/18/2012

0.753

12/17/2012

1.044

9/24/2012

0.305

6/21/2012

0.575

6/20/2012

0.968

6/25/2012

0.286

12/20/2011

0.58

12/19/2011

0.685

3/26/2012

0.258

6/22/2011

0.56

6/21/2011

0.871

12/21/2011

0.323

12/21/2010

0.916

12/20/2010

0.641

9/23/2011

0.276

12/22/2009

0.455

6/21/2010

0.81

6/24/2011

0.24

6/23/2009

0.36

12/21/2009

0.565

3/25/2011

0.21

12/23/2008

0.204

6/22/2009

0.681

12/22/2010

0.262

12/20/2007

0.039

12/22/2008

0.503

9/24/2010

0.246

6/23/2008

0.672

6/24/2010

0.208

12/24/2007

0.364

3/25/2010

0.2

12/22/2009

0.323

9/24/2009

0.226

3/25/2009

0.28

12/22/2008

0.288

9/24/2008

0.281

6/24/2008

0.246

MGV Yearly Dividend Totals

SCZ Yearly Dividend Totals

KXI Yearly Dividend Totals

2012

1.20

2012

1.33

2012

2.01

2011

1.05

2011

1.14

2011

1.56

2010

0.92

2010

0.92

2010

1.45

2009

0.83

2009

0.82

2009

1.25

2008

0.82

2008

0.20

2008

1.18

2007

0.04

2007

0.36

Yearly Dividend Total for popular dividend ETFs

SDY

1.909

2012

1.738

2011

1.363

2010

1.732

2009

1.614

2008

2.768

2007

1.77

2006

0.309

2005

VIG

1.41

2012

1.172

2011

1.048

2010

0.748

2009

1.026

2008

0.873

2007

0.526

2006

DVY

2.12

2012

1.848

2011

1.703

2010

1.661

2009

1.741

2008

1.157

2007

1.699

2006

1.387

2005

1.905

2004

Below are two charts using the data above that are very telling and that lead to some interesting conclusions. The first chart shows the total yearly dividend for each of the three ETFs that met my goals and criteria. The chart clearly shows that each ETF has grown its dividend year after year. The second chart shows the yearly dividend totals for the popular dividend ETFs, the chart clearly shows that SDY and DVY the dividend payments have no steady rise like the ETFs in the first chart. VIG on the other hand has a clear steady upward trending yearly dividend payout with only one drop in the yearly dividend total in 2009, which occurred because of the financial crisis, but since then VIG has continued increasing its dividend. In addition, I noticed that SDY has not even returned to the dividend total it paid out in 2007 before the financial crisis; whereas VIG and SDY pay a higher dividend now than they did before the crisis.


(Click to enlarge)


(Click to enlarge)

Closing thoughts

I believe the three ETFs I found should be considered for portfolios because they pay a stable, growing dividend. The ETFs grew dividends even during the financial crisis which, points to the strength of the ETFs. MGV would fit in well for someone wanting large cap U.S. exposure, SCZ would fit in well for someone looking for international exposure, and KXI would fit in well for someone looking for global exposure. Out of the three popular dividend ETFs I believe the data, and specifically the chart clearly shows the VIG is the best out of three, and if I had to choose one of the three dividend ETFs I would choose VIG.

Disclaimer

Source: The Best ETFs For Dividend Growth Lack 'Dividend' In Their Names