Dividend-themed exchange traded funds outperformed in 2011 but are lagging the overall market so far this year with investors favoring growth sectors rather than dividend payers.
Dividend ETFs were all the rage last year due to low bond yields and a desire for safety in an uncertain market.
Some analysts are predicting dividend ETFs will have another year of stellar performance, similar to what was seen in 2011. [A Quartet of Dividend ETFs]
Going back in history, since 1927 high-dividend-paying stocks have returned about 11% per year, higher than the average 8% that was gained by non-dividend paying companies, reports Michael Rawson for Morningstar.
Why should dividend ETFs outperform again in 2012? For one, stocks are offering a better relative value than bonds, explains Rawson. Furthermore, large-cap quality stocks are selling at a discount compared to small-caps right now. The larger companies can handle the slower economic growth that is forecast for the U.S. economy into this year. [ETF Chart of the Day: Dividend Funds]
“The reality of the U.S. employment picture is that it may be a very long time before the people who long for a ‘daily grind’ get the opportunity again. Without a better participation rate, the U.S economy and other developed world economies will see undesirable slow economic progress,” Gary Gordon wrote on Seeking Alpha.