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.