While there has been a spate of dividend increases from S&P 500 member firms over the past several years, some of which extend lengthy histories of payout boosts, the concerning reality is that dividend growth in the U.S. is actually slowing.
The current payout ratio on the S&P 500 is 44.4%, which is disappointing considering the aforementioned post-financial crisis surge in payouts. That payout ratio is even more of a dud when learning that the 80-year average payout ratio for the benchmark U.S. equity index is 51.4%.
Tepid payout growth puts added importance on proper analysis and selection of dividend exchange-traded funds. Not only that, but there are potentially mixed messages regarding some dividend ETFs heading into 2017.
For example, the Federal Reserve raised interest rates last week and is looking to do more of the same, possibly three times, next year. That means those dividend ETFs heavy on rate-sensitive sectors could be vulnerable.
On the other hand, some dividend ETFs could have the wind at their backs if President-elect Donald Trump is successful in getting Congress to revise tax provisions that have previously encouraged companies to stash mountains of cash outside the U.S.
“Moody’s estimates there will be $1.3 trillion in corporate cash sitting overseas by the end of 2016, including $230 billion held by Apple Inc. (NASDAQ:AAPL) alone,” according to Forbes.
With eyes on Capitol Hill and the Fed, let’s look at some dividend ETFs that could thrive in 2017.