Dividend exchange traded funds have been all the rage lately, which isn’t surprising since S&P 500 dividends are yielding more than the 10-year Treasury note.
Conservative, income-focused investors are venturing into new areas with bond interest rates so low and bank accounts yielding essentially zero. [Dividend ETFs in Focus as S&P 500 Yield Exceeds 10-Year]
On a quarter-end basis, the dividend yield on the S&P 500 has exceeded that for the 10-year Treasury note only 20 times since 1953, said Sam Stovall, chief investment strategist at Standard & Poor’s Equity Research.
“The good news is that in the following 12 months, the S&P 500 rose by an average 20%,” he wrote in a note Monday. “The bad news is that past performance is no guarantee of future results.”
Furthermore, companies are increasing dividends with the 500 largest U.S. companies raising their dividend payout at the fastest rate in seven years. Companies are sitting on lumps of cash as they have kept payrolls down and cut costs over the past few years. [Dividend ETFs Set to Benefit From Higher Payouts]
“The bullish view would be that companies are raising dividends because the have too much cash to know how to put it all to work; the bearish view would suggest that they’re scared to put their cash to work in this economy, so they’re paying it out. Bulls and bears can argue about the whys and wherefores, but both sides are at least intrigued by the idea of cashing in on the trend,” Chuck Jaffe writes for the Star Telegram.
Many analysts are suggesting that long term investors consider generating a greater chunk of their income from stocks. When looking at dividend ETFs, analysts suggest that investors look for yields that are at the level of the S&P 500 and better, explains Jaffe.
“There are a lot of ways to get dividend yield in funds, but most people will want to go into something that has low volatility, that isn’t leveraged and that isn’t in industries they’re uncomfortable with,” said Michael Falk of Michael S. Falk Asset Consulting, in the report.
Dividend ETFs launched recently include:
- iShares High Divdiend Equity Fund (NYSEArca: HDV)
- Global X SuperDividend ETF (NYSEArca: SDIV)
- Guggenheim ABC High Dividend ETF (NYSEArca: ABCS)
Tisha Guerrero contributed to this article.