20 Best Performing Dividend Yield ETFs And The Search For Income With Growth

by: Richard Shaw

The trend toward search for income with growth is well established. The financial repression by the Fed just makes the trend stronger, but even without that the demographic trends create forces that favor dividend growth oriented investing.

Best Performing Dividend Yield ETFs:

There are 20 stock ETFs that have a trailing yield of 3% or more, and that have positive 3-year and 1-year price returns, and no more than a 2% negative 1-month price return. There are 5 if the 1-month price return criterion is set to positive as well.

Here they are (click image to enlarge):

Click to enlarge

Other than a preferred stock ETF, they consist of utility funds, equity REIT funds, and dividend focused funds.

The lowest 1-year total return was just over 8% and the highest 1-year total return was just over 21%.

The contribution to total return by dividends for the trailing 1 year ranged from about 15% to about 70%, with an average of about 30%.

Note that no other criteria were applied for this list, and what works shifts over time. Historical return and yield may be beginning points, but other investigation and forward looking thinking is needed before making any investment.

Demographic Forces Favoring Dividend Growth Investing:

There is an increasing search for yield and dividend growth among investors -- particularly baby boomers, who see 20 or 30 years ahead with limited or no wage opportunity and the very high prospect of inflation and the need for income growth.

The demographic shift within the U.S. may well tilt the flow of funds toward dividend stocks for years to come.

In 1950, when the baby boom was getting under way, the age distribution of the U.S. population looked like this:

Click to enlarge

Toddlers were the largest population group.

By 2010, 60 years later, those toddlers who survived are now 60-64 years old, as shown here:

Click to enlarge

The 60-64 cohort is no longer the largest cohort, but when you multiply their assets times their population they are a major financial markets factor.

Additionally, the 64 - 80+ age groups are a much larger portion of the total population than in 1950. And, the 50-60 group, which can see the end of their working days coming down the pike, are a larger population too.

Those people (I am a baby boomer too) cannot take the very long view that a 25 or 35 year-old saver/investor can take.

Studies show they have not accumulated enough retirement savings to live comfortably. They are concerned, and they are seeking income, and income that will grow -- because they know by both experience and logic that inflation is to be expected. That leads them to tilt toward cash income generating investments, and preferably ones that are likely to increase cash payments over time. That creates a demographic force favoring dividend income.

One can make all the theoretical arguments about corporations being better able to allocate capital, and tax efficiency of stock buy-backs versus dividends, etc. However, people who are relying on their portfolios to live (excluding the very wealthy) want to see regular cash income, and they know that if they have to sell assets to raise cash they can run out of money quickly in an extended bear market.

These sorts of demographic and individual household needs, trump academic studies about optimal investment strategies.

Even major pension plans, which have had to rely relatively more in the past few years on asset sales to meet pension obligations because of low interest rates, may be rethinking the proportion of income versus price appreciation they seek in their total return.

The forces favoring income will increase for a while as well, as suggested by this population chart for 2020:

Click to enlarge

By 2020, the under age 50 population will be larger in proportion than they are now, but by then they may be indoctrinated in an income oriented psychology they observe in their elders, and as they watch their parents deal with their retirement financial realities.

In any event, in this moment, the search for income is on.

Disclosure: QVM has long positions in XLU in some accounts and does not have positions in any other mentioned security as of the creation date of this article (December 17, 2011).

Disclaimer: This article provides opinions and information, but does not contain recommendations or personal investment advice to any specific person for any particular purpose. Do your own research or obtain suitable personal advice. You are responsible for your own investment decisions. This article is presented subject to our full disclaimer found on the QVM site available here.