The paltry interest rates in U.S. Treasuries have driven income-starved investors to other areas of the market for yield, including exchange traded funds that concentrate on dividend-paying stocks.
“We continue to focus on companies that have the ability to generate strong levels of free cash flow,” says ETF manager BlackRock. “Companies that have the ability to raise dividends, buy back stock and make new investments are well positioned.” [ETF Chart of the Day: Dividend Funds]
Verizon (NYSE: VZ) on Thursday raised its dividend by nearly 3%.
“Many companies around the world have robust balance sheets and the ability to return cash to shareholders through dividends, share buybacks, etc. and these companies offer some significant value,” BlackRock said in a strategy note. [International Dividend ETFs]
Almost half the companies in the S&P 500 are paying annual dividend yields of 2% or more, according to USA Today. Yields on the 10-year Treasury note are hovering around 2%.
“In the tough market environment and with low Treasury yields, stocks with healthy dividends … are quite attractive,” Drake Johnstone at Davenport told USA Today.
The $7.1 billion iShares Dow Jones Select Dividend Index Fund (NYSEArca: DVY) is up 4.1% year to date, versus a 1.8% loss for the S&P 500, according to Morningstar. The ETF sported a 12-month yield of 3.51% as of July 29. The fund’s top three sectors are utilities, consumer goods and industrials at 34.7%, 21.5% and 13%, respectively.
Other dividend ETFs include:
- Powershares Intl Dividend Achievers (NYSEArca: PID)
- iShares High Dividend Equity Fund (NYSEArca: HDV)
- Vanguard Dividend Appreciation ETF (NYSEArca: VIG)
- SPDR S&P Dividend ETF (NYSEArca: SDY)
- WisdomTree LargeCap Dividend (NYSEArca: DLN)
iShares Dow Jones Select Dividend Index Fund
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own DVY.