Corporate America is sitting on a lot of cash and more companies are beginning to dole out more with dividends. With companies issuing higher payouts and bond yields still low, dividend exchange traded funds may begin to attract even greater interest.
S&P 500 dividends rose about 15% in the first quarter year-over-year, writes Eddy Elfenbein for Crossing Wall Street.
Apple (NasadqGS: AAPL) has announced its intent to give back to its investors. CA Technologies is quintupling its dividend payouts. JPMorgan (NYSE: JPM) has also raised its dividends. [Three ‘Fairly Valued’ Dividend ETFs]
All in all, 122 companies from the S&P 500 have raised their dividends, and seven new companies are starting to issue payments. Only three have diminished their dividends. [Dividend ETFs for an Uncertain Market]
Dividends tend to be stable and allow investors to glean the fiscal health of the issuing company. However in recent years, dividend payouts have been drastically cut. In 2009, the annual dividends dropped 21% as the financial crisis crippled the whole market. Specifically, the financial sector took the brunt of the hit as they complied with TARP payment requirements – quarter dividends for the SPDR Financial Select Sector Fund (NYSEArca: XLF) plunged about 70%. In comparison, the 2001 market crash only led to an overall dividend drop of 3%.
Currently, higher corporate profits are fueling the higher dividend payouts, and observers believe dividends are on pace to hit a record high this year. Additionally, dividend payout ratios are still below 30%, or below the average, which suggests that there is still wiggle room.
Howard Silverblatt, senior index analyst at Standard & Poor’s, estimates that dividends for the year will hit $29.70. If dividend yields are to maintain a 2% target, the S&P 500 would have to rise to 1,485, or a 4.6% increase, by the end of the year, according to the Crossing Wall Street blog post.
The largest dividend ETFs include:
- Vanguard Dividend Appreciation ETF (NYSEArca: VIG): 12-month yield of 2.00%
- iShares Dow Jones Select Dividend Index Fund ETF (NYSEArca: DVY): 12-month yield of 3.37%
- SPDR S&P Dividend ETF (NYSEArca: SDY): 12-month yield of 3.11%
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.