Dividend ETFs to Play Fatter Payouts | ETF Trends

As the economy improves, companies that are sitting on a pile of cash now feel safe enough to reward their long-term investors with higher dividend payouts. Instead of picking single stocks, you might be better off playing the dividend craze with exchange traded funds (ETFs) instead.

Just look at this small sampling of companies raising, reinstating or starting dividends this year:

  • Bank of America (NYSE: BAC) CEO Brian Moynihan said that his company will be in a position to raise dividends in the second half, reports Shira Ovide for The Wall Street Journal.
  • Additionally, Goldman Sachs forecasts U.S. Bancorp (NYSE: USB), J.P Morgan Chase (NYSE: JPM), PNC Financial Services (NYSE: PNC) and Wells Fargo (NYSE: WFC) to launch or hike dividends, as well.
  • According to Zacks, Carnival Corporation & PLC (NYSE: CCL) stated that it will raise quarterly dividends by 15 cents to 25 cents per share, or a 150% increase in dividends, payable on March 11.
  • As stated by RTT News, Airgas Inc. (NYSE: ARG) plans to increase its fourth-quarter cash dividend on its common stock by 16% to $0.29 a share from its previous $0.25 a share, or a 33% increase in dividends, payable on March 31.
  • Family Dollar Stores Inc. (NYSE: FDO) lifted its quarterly dividend by 16% to 18 cents a share from 15.5 cents a share, reports John Kell for The Wall Street Journal.
  • Washington Post Co. (NYSE: WPO) raised dividends 40 cents a share as Warren Buffet retires from its its board of directors, reports Nat Worden for The Wall Street Journal.

According to SFGate, it is important to pick out the right dividend ETFs to benefit from the new round of dividend hikes coming out, such as:

  • iShares Dow Jones Select Dividend Index (NYSEArca: DVY). DVY is exposed to over 100 stocks that have high yields or have a tendency to raise dividends.
  • WisdomTree LargeCap Dividend ETF (NYSEArca: DLN). DLN holds stocks from the Dow Jones Industrial Average, which are reliable dividend raisers.
  • Vanguard Dividend Appreciation ETF (NYSEArca: VIG). VIG is also heavily weighted in Dow stocks. It is suggested that investors don’t need to own DLN and VIG at the same time since there is a lot of overlap.

The most popular dividend ETF strategies available are dividend increasing/appreciation, such as the Vanguard Dividend Appreciation (NYSEArca: VIG), and high dividend, such as the Vanguard High Dividend Yield Index (NYSEArca: VYM), says MyPlan IQ for SeekingAlpha. The dividend appreciation strategy emphasizes high quality companies that increase dividends over time, which are usually companies that have better cash flow and a positive earnings outlook, whereas high dividend ETFs look for companies that issue high payouts.

For more information on dividends, visit our dividend ETFs category.

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. 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.