Stock dividend information is crucial to investors of all strategies. The stock market hasn’t returned a single red cent in over twelve years as measured by the S&P 500. Twelve years is a long time to go without earning a return on your investment, particularly if you are close to retirement. But investors who have relied on high yield dividend stocks and ETFs have at least been rewarded with the payouts from their portfolios via quarterly disbursements.
With the boom years of the 1980s and 1990s now a distant memory, it is not shocking to see investors losing faith in the cult of capital gains and gravitating instead to dividend-paying stocks and ETFs. In a world in which paper gains can be ephemeral, it’s good to be paid in cold, hard cash.
Today, we have our choice of a host of dividend focused ETFs — so many, in fact, that it can be daunting to choose. Though all claim dividends as the central piece of their investment mandate, there are significant differences between strategies that investors should understand. In this article, I’m going to pick apart some of those differences.
Dividend ETFs – Three Strategies
There are already well over a dozen dividend ETFs that focus on the U.S. market, and I included the most popular in the chartbelow. Each can be grouped into one of three major categories:
- High dividend yield
- High dividend growth rate
- Dividend weighting
The first category is what most investors immediately think of when they hear “dividend investing.” The primary focus is on high current income with capital gains as a distant second. This is good, old-fashioned “widows and orphans” investing and is the most conservative of the three strategies.
The iShares Dow Jones U.S. Select Dividend ETF (NYSE: DVY) is the oldest dividend-focused ETF and is the only one to follow a pure high-yield strategy. The fund represents America’s top stocks by dividend yield, selected annually. To weed out those at risk of cutting their dividend, companies must have a positive five-year dividend per share growth rate and a dividend payout ratio of no more than 60% of earnings. The stocks that qualify are then ranked by dividend yield and the top 100 are selected.
The result is a solid ETF that currently yields more than the 10-year Treasury with an expense ratio and turnover that are tolerably low.
The second category is based less on dividend yield and more on the growth rate of dividends. READ ON FOR MORE DIVIDEND ETFS …