Dividends are a sign of a publicly-traded company’s financial standing. If a corporation is maintaining its dividend or even raising it, it’s generally taken as a signal by investors that the company is on solid ground. This often creates a positive cycle in which the company pays a dividend, more investors buy that company’s stock and the stock price goes up, benefiting all the current shareholders.
When most bond yields are as low as they are now, dividend ETFs may be a better option for many investors. And with the markets as volatile as they are now, dividend funds can provide a little stability, since few companies pay dividends if they don’t plan on doing so for the long-term.
Beyond regular dividend-paying companies, there are two types of dividend-payers that are in a class all their own: dividend achievers, which are companies that have raised dividends for the last 10 consecutive years and dividend aristocrats, which are companies that have raised dividends for the last 25 consecutive years.
While yields on dividend ETFs may not necessarily be as high as they would on, say, a high-yield corporate bond ETF, they do provide more stability, consistency and reduced risk for your clients.
Utilities
Utility ETFs don’t scream high performance and robust returns, but they do produce some decent dividends and with relatively low risk. In fact, because the utility sector is less likely to have large market swings, it’s considered a “defensive investment.”
That’s because by and large, the fundamentals are in the utility sector’s favor. No matter what, everyone needs water and electricity. They may scale back usage in tight times, but it would be impossible to do away with utility services completely. Furthermore, most municipalities also let their utilities engage in a local monopoly since it is more efficient to have one company providing all the services in an area.
Dividend payouts provided by utility ETFs are on the low side, but utilities have a history of rising distributions, which also helps lower inflationary risks.
Aside from the broader fundamentals, the case for utilities these days is a strong one. The U.S. electrical grid is notoriously outdated; funding to bring the grid into the 21st Century is in the works. On top of that, population growth in both the United States and overseas is expected to put greater demands on the utility sector.
You can visit the ETF Analyzer and sort the available utility ETFs by yield, which currently range from 3% to 12% for an international utilities fund.