Corporate America is sitting on $1.24 trillion in spare change. After a short stint spent on cost-cutting measures, corporations are now thinking about putting that money to work in addition to increasing dividends and spending more on stock buybacks. The flurry of corporate activity may be good news for dividend exchange traded funds (ETFs).
Capital expenditures by businesses increased by an average of 11% for non-financial companies in the most recent quarter for which figures were available, reports Will Daley for Bloomberg. Additionally, “free cash flow,” or money generated beyond capital spending, jumped $139 billion for those companies. [Dividend ETFs: Aristocrats and Achievers.]
However, job growth is still sluggish, with unemployment settling at 9.5% in June. The U.S. Commerce Department stated that the economy grew 2.4% in the three months through June, which is short from the upwardly revised 3.7% in the first quarter. Corporate spending on equipment and software, which was up 22% on an annual rate, mostly supported the growth. [ETF Trends Podcast 12: Dividend ETFs.]
Companies are now more apt to spend a little more to sustain growth. Manufacturing companies would need to invest in production facilities and capacity to meat increases in demand. Tech companies are dishing out more cash to expand data centers and for further research and development. Capital expenditure among non-financial S&P companies is up an average 11% year-over-year.
Dividend stocks may be the better alternative to bonds since stock yields are currently higher than bond yields, comments Anand Chokkavelu for MSN. Furthermore, dividend payouts are also highly correlated with growth stocks, according to Robert Arnott and Clifford Asness. Companies with dividend payouts will only do so if they plan on doing so for the long term, which signals to observers that it is steady and self-sufficient enough to return some capital back to investors.
For more information on dividends, visit our dividend ETFs category. These are some dividend ETFs, but you can find them all in our ETF Analyzer by searching “dividend.” You can further sort them for yield and performance on the Analyzer, or research their holdings and composition on the ETF Resume. Among the many you’ll uncover:
- SPDR S&P Dividend (NYSEArca: SDY)
- Vanguard Dividend Appreciation (NYSEArca: VIG)
- PowerShares High Yield Dividend Achievers (NYSEArca: PEY)
- PowerShares Dividend Achievers (NYSEArca: PFM)
- Claymore/S&P Global Dividend Opp (NYSEArca: LVL)
- Claymore/Zacks Dividend Rotation (NYSEArca: IRO)
- First Trust Value Line Dividend Index (NYSEArca: FVD)
- WisdomTree Dividend Top 100 (NYSEArca: DTN)
- WisdomTree International Dividend Top 100 (NYSEArca: DOO)
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. 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.