Dividend ETFs Set to Benefit from Higher Payouts

September 7th at 3:12pm by Tom Lydon

Dividend exchange traded funds are set to profit from higher payouts from corporate America, but income-starved investors should keep in mind that stocks are more volatile than bonds. If the economy worsens, investors in equity-linked ETFs may suffer capital losses that could swamp the dividend yield.

That said, higher dividend payouts are on the way for this year and into 2012, as companies are reporting record profits and are secure with cash, according to a recent report.

Dividend funds have become a popular category in the ETF business with 10-year Treasury yields hovering around a measly 2%.

The 500 largest companies in the U.S. are increasing their dividend payout at the fastest rate in seven years, reports Matt Andrejczak for MarketWatch. Companies are cash-rich which can be attributed to their reluctance to hire new employees and the result of major cost cuts they implemented during the recession.

“Dividends are having a very good year,” says Howard Silverblatt, senior index analyst at Standard & Poor’s. “The good news is we’re on road to recovery. The bad news [for dividend investors] is you’re not back to 2008.” [S&P's Favorite Dividend ETFs]

More facts about the state of dividends, now, according to Howard Silverblatt:

  • Dividends are still short, and the difference may not be made up until mid-2012, barring a double-dip recession, according to Silverblatt.
  • Investors’ dividend checks are up 13% since December 2010. This is 8% less than 2008, when dividend checks equaled about $248 billion.
  • Sector-wise in the S&P 500, health-care, consumer staples and industrials are the strongest in terms of dividend payouts.

The largest dividend-themed ETFs by assets include:

  • iShares Dow Jones Select Dividend Index Fund (NYSEArca: DVY)
  • Powershares Intl Dividend Achievers (NYSEArca: PID)
  • iShares High Dividend Equity Fund (NYSEArca: HDV)
  • Vanguard Dividend Appreciation ETF (NYSEArca: VIG)
  • SPDR S&P Dividend ETF (NYSEArca: SDY)
  • WisdomTree LargeCap Dividend (NYSEArca: DLN)

Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.