Dividend Stocks and ETFs: Is Bigger Better?

August 13th at 9:02am by Tom Lydon

Large-cap growth stocks and focused dividend exchange traded funds have weathered the market uncertainty in 2012 in stride. Investors may be wondering if the success of dividend focused ETFs may be winding down or if it is just getting warmed up.

“Large-cap stocks have shown a very persistent improving trend of relative strength recently, and with the public investor so paralyzed in today’s investment world, we believe that it will be the large pools of money that recognize there is no better ‘safe haven’ than U.S. stocks,” Don Hays of Hays Advisors wrote in his blog. [Is the Dividend ETF Trade Overcrowded?]

Big growth stocks are also alluring because the liquidity that is innate in these companies cuts some of the investing risk out. However, high growth companies that are experiencing high valuations can be more sensitive to major market news, such as any negative news coming out of Europe, said Gus Zinn of Ivy Core Equity Fund. [ETFs: Innovation, 401(k) Plans and the Dividend Trade]

A strategy that some analysts back up is not to look for the highest yield, rather seek out lower priced stocks with dividend yields of 2%-3% and potential for the yield to grow, reports Rachel Konging Beals for MarketWatch.

“We view mega-caps as the new market leadership. Mega caps represent growth, quality, yield and big bases,” the equity technical analysis team at Bank of America Merrill Lynch said in a commentary.

Key sectors benefitting are consumer staples, health care (primarily pharmaceuticals), technology, consumer discretionary (primarily media) and telecommunications. [Dividend ETFs Benefit From Higher Payouts]

Here are a few large-cap dividend ETFs:

  • iShares High Dividend Equity ETF (NYSEArca: HDV)
  • iShares Dow Jones EPAC Select ETF (NYSEArca: IDV)
  • iShares Emerging Markets Dividend ETF (NYSEArca: DVYE)
  • Vanguard Dividend Appreciation ETF (NYSEArca: VIG

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.