According to S&P Dow Jones, 1,078 companies boosted dividends in Q1, 14.2% more than a year ago, and besting the previous record of 1.069 set in 1979. The dollar amount of increases foots to $17.8B, 22.9% higher than a year ago. A few cut payouts - 102 out of roughly 10K traded issues, and down from 139 a year ago.
The weighted dividend yield grew 4 basis points during the quarter to 2.48%, says S&P's Howard Silverblatt. Room to grow even more? Payout ratios continue to scrape by at 36% vs. their historic average of 52%.
The First Trust Value Line Dividend Index ETF (FVD +0.2%) has done its job well, writes Morningstar's Abby Woodham, but the 70 basis point expense ratio is "a relic of the days before the ETF price wars." It may have been acceptable a decade ago, but is "unjustifiable" when similar ETFs are available for just a handful of basis points per year.
FVD's portfolio looks like a low-vol strategy that emphasizes yield, she writes, and the 5-year standard deviation is one of the lowest among dividend ETFs.
Possible alternatives: Vanguard Dividend Appreciation (VIG +0.1%) with 0.10% expenses, Vanguard High Dividend Yield Index (VYM -0.1%) also charging 10 bps, Schwab U.S. Dividend Equity ETF (SCHD +0.1%) - the cheapest in the category at 0.07% - SPDR S&P Dividend (SDY +0.1%) with 0.35% expenses, WisdomTree Equity Income (DHS) with 0.38% expenses, and iShares Select Dividend (DVY +0.3%) charging 0.40%.
Comparing metrics for the two of the more popular dividend strategies - the SPDR S&P Dividend ETF (SDY +0.4%) and the Vanguard Dividend Appreciation ETF (VIG +0.7%) - against the two largest large-cap value ETFs - the Russell 1000 Value ETF (IWD +0.9%) and Vanguard's Value ETF (VTV +0.7%) - Larry Swedroe finds valuations quite stretched for the dividend players.
The SDY sports a P/E ratio of 17.2x, price/book ratio of 2.5x, and price/cash flow ratio of 10.5x, with the VIG showing similar. The value ETFs have P/E below 14x, price/books below 2x, and price/cash flow below 6x.
The popularity of dividends has led to a pleasing rise in the values of the stocks, but has thus reduced expected future returns, reminds Swedroe. And for taxable accounts, it's even worse as dividends are less tax-efficient than capital gains.
Q4 net dividend increases of $12.7B compared to $8.4B in 2012 Q4, according to S&P. The number of increases (885), however, pales in comparison to the 1,266 "tax-incentivized" hikes from a year ago (there were 649 in 2011).
Of roughly 10K traded stocks, 51 companies cut payouts in Q4 compared to 154 in the year-earlier quarter.
Room for more hikes? S&P's Howard Silverblatt notes payout rates - which historically average 52% - continue to remain near their low of 36%. "At this point, we expect Q1 to be a very busy positive period for dividends, with 2014 setting another record for payments."
The weighted dividend yield off 2.44% compares to 2.6% in Q3 and 2.8% in Q4 of 2012 as boosted payouts aren't quite keeping pace with the strong advance in equity prices.
The First Trust High Income ETF (FTHI) and Low Beta Income ETF (FTLB) will use index options as a complement to its equity holdings.
The Nasdaq Rising Dividend Achievers ETF (RDVY) tracks an index of 50 companies with a history of raising payouts, and "that exhibit the characteristics to potentially continue doing so in the future."
Nasdaq indices are used in a number of well-followed dividend ETFs such as PowerShares' High Yield Dividend Achievers Portfolio (PEY) and PowerShares' Dividend Achievers Portfolio (PFM).
For its part, FirstTrust's other dividend ETFs include the Nasdaq Technology Index Fund (TDIV) and the Value Line Dividend Index Fund (FVD).
In the battle for investor dollars among dividend ETFs, Vanguard's Dividend Appreciation ETF (VIG) has soared past iShares' Select Dividend ETF (DVY) and SSgA's SPDR S&P Dividend ETF (SDY) on both an absolute basis and a s a percentage of AUM.
The lesser-known Global X SuperDividend ETF (SDIV) has nearly doubled its AUM this year and - at less than 3 years old - is knocking on the door of $1B in assets despite inconsistent performance. Investors desire for income is certainly a boost as is the fund's equal-weighting approach and monthly payout - which fluctuated wildly in 2012, but has settled into a tight range this year.
Dividend ETF fans may soon have three more funds to choose from as Reality Shares files to launch a trio of ETFs. Tickers and fees have not yet been disclosed.
The Reality Shares Isolated U.S. Dividend Growth Index ETF and The Isolated Global Dividend Growth Index ETF will both be passive strategies, and the Isolated Dividend Growth ETF will be actively managed.
The company's edge - so it argues - will be a focus on earnings rather than stock price as the measure of potential returns. Isolating the dividend from the stock price can provide positive returns not directly correlated to broader equity or fixed-income trends, says the company.
Assets in dividend-themed ETFs have ballooned nearly 50% to $80B this year, according to Ned Davis Research, led by Vanguard Dividend Appreciation (VIG) with $3.2B in inflows, the SPDR Dividend ETF (SDY) with $1.2B, and the Vanguard High Dividend Yield ETF (VYM) with $1.6B.
Meanwhile, ETFs holding U.S. government debt hold just $67B in assets, with funds like the iShares 3-7 Year Treasury Bond ETF (IEI) seeing several hundred million exit, and the iShares TIPS Bond ETF (TIP) losing a whopping $6.9B.
The team at Ned Davis recommends looking away from the popular dividend plays and towards a lagging emerging-market alternative, the WisdomTree Emerging Markets Small-Cap Dividend Fund (DGS), yielding 3.3% and up 3.8% this year.
The S&P 500 Aristocrats ETF (NOBL) launched today - the fund homepage outlines the fund strategy of holding only S&P 500 companies that have increased their dividends consistently over the past 25 years.
To differentiate from current sector leader, SDY, (both have expense ratios of .35%) NOBL places an importance on equal weighting and not allowing any one sector to occupy more than 30% of the fund.
Dividend payers may be a good place to hide out from rising interest rates, but those stocks sporting the highest yields - telecoms and utilities - tend to have slow payment growth, making them less-attractive as rates rise. Checking back to the 1994 bond bear market, telecoms and utilities were among the market's worst performers.
Better to shop for modest payers, but above-average payment growth. Barron's screens for those characteristics combined with reasonable overall valuation and turns up three names: Boeing (BA), CVS Caremark (CVS), and GE.
Certain dividend ETFs employ this strategy as well, with Vanguard's Dividend Appreciation (VIG) - almost zero exposure to telecoms and utilities - and WisdomTree's U.S. Dividend Growth ETF (DGRW) coming to mind. Others include DGRS, DNL, EMDG, DGRE.
DGRE has heavier exposure than most to consumer sectors, says WisdomTree (WETF) research director Jeremy Schwartz, and is underweight the "BRICs" while having some of its largest holdings in the "MIT" countries - Mexico, Indonesia, and Thailand.
WisdomTree is also the proprietor of the $4.8B AUM Emerging Markets Equity Fund (DEM).
WisdomTree launches the U.S. SmallCap Dividend Growth Fund (DGRS) with expense ratio of 0.38%. It'll join WisdomTree's SmallCap Dividend Fund (DES). Two domestic small-cap dividend funds? DES represents a conservative approach with financials, industrials, and utilities making up 57% of holdings, writes Tom Lydon. DGRS has no exposure to utilities or telecoms, and staples are hardly found. Instead consumer discretionary and tech make up 38% of fund holdings. Other WisdomTree dividend growth ETFs are DNL and DGRW.
Popular dividend ETFs - HDV, VYM, VIG, SDY, DVY among them - have fared worse than the SPY as interest rates have risen of late. Credit Suisse narrows the risk down further, identifying 20 stocks with the biggest share of their float held by dividend ETFs. This basket includes Cincinnati Financial (CINF) and Pitney Bowes (PBI) and it's off 3.4% since Ben Bernanke's May testimony, twice as much as the broad market. We'll post the other 18 as they come available.
Vanguard's popular Dividend Appreciation ETF (VIG) gets even cheaper, the annual fee dropping to 0.10% from 0.13%. It's the 56th Vanguard ETF to drop fees this year vs. a total of 65 run by the company. Competitors include: DVY, SDY, VYM, HDV, DLN.
Multi-asset income ETFs are here to stay, writes Paul Britt, as Guggenheim's CVY crosses $1B in AUM. It's been around since 2006, but a new entrant, MDIV has pulled in $440M in less than a year. These income funds have no mandate in their search for yield and roam across dividends (DVY), high-yield (HYG), REITs (IYR, VNQ), and MLPs (AMJ) as necessary. One drawback is their somewhat high expense ratios - in the 60-80 bp range, compared, for example, to DVY at 40 bps. Other M-A ETFs: INKM, IYLD, GYLD, HGI.
WisdomTree (WETF) plans a Wednesday launch for its U.S. Dividend Growth Fund (DGRW) - tracking a fundamentally-weighted index of about 300 dividend payers with annual cost of 0.28%. Among the eligibility requirements: Regular dividends for 12 consecutive months and market cap of at least $2B. Individual security weighting is capped at 5%, with sector allocation capped at 20%. Among the large selection of other dividend funds: VIG, PFM, DHS, DTN. More here.
WisdomTree U.S. Dividend Growth Fund seeks investment results that closely correspond to the price and yield performance, before fees and expenses, of the WisdomTree U.S. Dividend Growth Index.
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