There were plenty of shareholder rewards to be had in 2015. Of course, that is a good thing. Just look at the third quarter. During the July through September period, S&P 500 member firms boosted share repurchases by 14.5% to $150.6 billion.
“Year-over-year comparison shows that share repurchases have increased 3.7% over the $145.2 billion reported during the third quarter of 2014,” said S&P Dow Jones Indices in a statement out earlier this month.
As for dividends, the news has been mostly good, which is … well, good considering all the chatter about rising interest rates potentially having an adverse impact on payouts.
“Aggregate dividend payments totaled $103.3 billion for Q3 and $410.8 billion over the trailing twelve months. The TTM amount ending in Q3 marked the largest dividend amount in at least ten years. On a per share basis, the TTM dividend payout was $42.36, which represented 10.9% growth year-over-year,” according to recent FactSet data.
As for dividend ETFs, 2015 has been a tricky year. Only two of the four largest U.S. dividend ETFs — the Vanguard High Dividend Yield ETF (VYM) and the SPDR S&P Dividend ETF (SDY) — have posted positive returns, and the average year-to-date gain for those dividend ETFs is a meager 1.6%.
Changes in Federal Reserve policy — namely the first interest rate increase in nearly decade — have been a drag on dividend ETFs. However, markets and market participants are dealing with that interest rate hike and appear prepared for several more in 2016. Even if the Fed bumps rates up to 1.25% by the end of 2016, the case for dividend ETFs does not dwindle.
In fact, if inflation rises, the case for dividend ETFs increases because dividend stocks perform well as inflation jumps.
For now, these are three of the must-own dividend ETFs for 2016.
Must-Own Dividend ETFs: Vanguard Dividend Appreciation ETF (VIG)
Expenses: 0.1%, or $10 per $10,000 invested.
The Vanguard Dividend Appreciation ETF (VIG) was home to $19.4 billion in assets under management at the end of November, making it the largest U.S. dividend ETF.
There are good reasons why VIG wears the crown of the largest U.S. dividend ETF.
VIG has ascended to dividend ETF royalty in part because its 179 holdings must meet minimum dividend increase streaks of 10 years, a trait the dividend growth investors finds alluring.
In fact, several of VIG’s top 10 holdings, a group that combined for 34.6% of the dividend ETF’s weight at the end of November, are dividend aristocrats, meaning their dividend increase streaks span more than two decades.
Those VIG holdings include Dow components Coca-Cola (KO), Johnson & Johnson (JNJ) and Procter & Gamble (PG).
Another reason VIG has ascended to must-own dividend ETF status is because of its low fees. As ETF and index fund investors well know, over time, fees erode returns. However, VIG charges just 0.1% per year, making it one of the least expensive dividend ETFs on the market today.
In fact, VIG is 90% less expensive than the average expense ratio of similar funds, according to Vanguard.
Global X SuperDividend U.S. ETF (DIV)
Expenses: 0.45%
For pure yield enthusiasts, dividend ETFs don’t get much better than the Global X SuperDividend U.S. ETF (DIV).
Just look at these staggering statistics sported by this dividend ETF: A trailing-12-month dividend yield of almost 8.7% and a distribution yield of nearly 17.2%.
Beyond its big weights to utilities and consumer staples, DIV accesses nontraditional dividend stocks through master limited partnerships and real estate investment trusts. Those asset classes are home to more monthly dividend stocks than traditional, common dividend stocks.
DIV’s top 10 holdings include Reynolds American (RAI) and Phillips Morris (PM).
This dividend ETF charges 0.45% a year. And this dividend ETF pays its dividends on a monthly basis.
iShares U.S. Preferred Stock ETF (PFF)
Expenses: 0.347%
A preferred stock fund such as the iShares U.S. Preferred Stock ETF (PFF) makes for a fine alternative or complement to the traditional dividend ETFs.
Preferred stocks are often viewed as hybrid securities, meaning market participants view preferred stocks as part equity, part bond. Preferred stocks are often prized by astute income investors because preferred stock dividends are fixed; it is a significantly negative financial event when a company skips out on paying preferred dividends; and the asset class features tempting yields.
Like other dividend ETFs, preferred funds such as PFF are seen as vulnerable to higher interest rates because of their high yields (PFF has a trailing 12-month yield of almost 6%). However, PFF is a dividend ETF that has proven sturdy despite rising rates, as the fund is up more than 4% year-to-date.
More than 60% of PFF’s 286 holdings hail from various corners of the financial services universe — par for the course with preferred stock ETFs.
PFF is a good idea for conservative investors because the dividend ETF carries a docile standard deviation of just over 4%.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.
