Dividend ETF Yield Even More Critical in Sideways Markets

October 23rd at 2:10pm by John Spence

Pathetic yields in Treasuries, money markets and other traditional safe havens have driven investors into the arms of dividend-themed ETFs. However, predictions of lackluster equity returns and sideways markets in the wake of the financial crisis are also another key factor pushing the trend in dividend funds.

PIMCO dividend product manager Brad Kinkelaar points that historically, during some decade-long stretches, the income from dividends is really all an equity investor has, reports Josh Brown at the Reformed Broker blog.

Some of the largest dividend ETFs include iShares Dow Jones Select Dividend Index Fund (NYSEArca: DVY), iShares High Dividend Equity Fund (NYSEArca: HDV), SPDR S&P Dividend ETF (NYSEArca: SDY), Vanguard Dividend Appreciation ETF (NYSEArca: VIG), Vanguard High Dividend Yield Index Fund (NYSEArca: VYM), WisdomTree Dividend Top 100 Fund (NYSEArca: DTN), WisdomTree Emerging Markets Equity Income (NYSEArca: DEM), PowerShares International Dividend Achievers (NYSEArca: PID) and First Trust Morningstar dividend Leaders (NYSEArca: FDL). [Dividend ETFs to Reap Record Quarterly Payout]

“The Federal Reserve’s low interest rate policy and plans to keep rates low through 2015 have chased yield-hungry investors out of cash investments and into higher-yielding products. ETF sponsors have met investors’ yield demands with aplomb, rolling out new dividend-based products on a regular basis this year,” Benzinga reports.

“The impact of investors’ dividend desires is obvious. Dividend ETFs, new and old, have seen assets under management totals surge,” it notes.

Even during prolonged rallies, dividends still represent a decent chunk of overall returns in the stock market.

“It’s important to understand that it’s not the very highest payers you want — many high-yielding stocks got there the hard way through share price declines,” according to the Reformed Broker report. “Nominal yields alone are not the story.”

Also, it’s not just high dividend payers that you should be looking for, it’s companies that are growing their dividends at high rates that really amp up performance, the blog adds.

In ETFs, Vanguard Dividend Appreciation ETF (VIG) tracks the Dividend Achievers Select Index, which was created by Mergent. The benchmark follows U.S.-listed companies that have increased their annual regular dividends for at least the past 10 consecutive years.

Chart source: PIMCO via Reformed Broker

The opinions and forecasts expressed herein are solely those of John Spence, 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.

Tickers