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Exchange Traded Funds (ETFs) that focus on dividend returns have become a popular option for some investors. These investments usually attempt to track the performance of an index of stocks that have a record of consistent dividend growth. The ETF must distribute all the dividends received on the underlying basket of stocks (minus the management fee). How does the growth of the dividend yield of Dividend ETFs compare to individual stocks?

Dividend ETFs don’t have a long history. One of the first on the scene was the iShares Dow Jones Select Dividend ETF (NYSEARCA:DVY). We will compare DVY to several of its largest holdings (AT&T (NYSE:T), FPL Group (NYSE:FPL), Merck (NYSE:MRK), Altria (NYSE:MO)) to see how the overall ETF dividend growth tracks versus the dividend growth on these individual shares.

It is obvious that the dividend growth of DVY has increased along with most of these other stocks. The difference is that DVY has a more erratic growth pattern. It is not clear why a basket of dividend growth stocks would have this type of pattern since one would assume the basket should be more stable than an individual stock. I will revisit DVY at a later date to see if this trend continues.

Disclosure: Author is long DVY

Stocks used in this article:

  • (DVY: 67.28, 0.00%, Yield: 1.72%)
  • (T: 41.71, 0.00%, Yield: 3.40%)
  • (FPL: 69.15, 0.00%, Yield: 2.37%)
  • (MRK: 59.72, 0.00%, Yield: 2.55%)
  • (MO: 77.71, 0.00%, Yield: 32.26%)
Source: Growth Trends of Dow Jones Select Dividend ETF