Can Dividend ETFs Sustain Their Performance?

February 8th at 11:12am by Tom Lydon

In 2011, the dividend growth strategy ruled the stock market, as conservative investors were seeking yield and relative safety. The S&P 500 was mostly flat for the year, while focused exchange traded funds such as the Vanguard Dividend Growth Strategy (NYSEArca: VIG) gained nearly 10%. Can the rally sustain into 2012?

“There’s a real possibility that dividend stocks could trail this year, but long term, dividends have accounted for nearly half of the S&P 500 investors’ total return,” Jack Ablin, chief investment officer of Harris Private Bank, said on Financial Post. [Dividend ETF Can Anchor a Portfolio]

In 2012, there is more potential that capital appreciation could dominate big stock indices if the economy can regain growth. Much of this depends on the fate of the Eurozone and how the rest of the globe can deal with the overseas debt crisis, reports John Wasik for Financial Post. [U.S. ETFs See more Inflows]

In 2011, dividends accounted for about 2% of the S&P 500′s total return. Investors flocked to dividend stocks and ETFs because of their income stream and possible growth potential. The stocks that paid the best dividends last year were the companies that were cash-rich and those that could hold up in times of economic malaise, such as utility companies and telecom. Those sectors may not be able to follow up as strongly in 2012.

Sector rotation is another factor to consider. Most institutional investors favor different industries or sectors from one year to another. In a new growth environment, a hot sector could be anywhere such as materials, technology or consumer staples. [Can Dividend ETFs Outperform Again After Stellar 2011?]

There is no doubt that the Eurozone will continue to suffer in 2012, especially as countries such as Portugal, Greece and Ireland continue to wane economically. If a global slowdown maintains, then dividend focused investments should continue to buffer a portfolio. Be sure to keep your portfolio balanced and diversified and don’t concentrate your bets in one sector.

iShares Dow Jones Select Dividend (NYSEArca: DVY)

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.

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