With the paltry yields being offered by safe-haven Treasury bonds, alternative income-generating assets such as dividend exchange traded funds are attracting a wider audience. Dividend ETF investors may now draw upon a more diversified pool of stock components and look for higher income in the future as more companies raise and start issuing dividends.
Nasdaq OMX Group (NasdaqGS: NDAQ) initialized its first dividend on April 25, according to Seeking Alpha. Additionally, Apple (NasdaqGS: AAPL), Agilent Technologies (NYSE: A), American Tower (NYSE: AMT), Coventry Health Care (NYSE: CVH), Gamestop (NYSE: ME), SAIC (NYSE: SAI) and Thermo Fisher Scientific (NYSE: TMO) are now offering payouts. [Dividend ETFs: A Solution to Stock Picking]
Currently, there are 402 dividend payers on the S&P 500, a 12-year high, and 122 companies have increased their dividends, with only three companies reducing dividends over the first quarter.
Since the 2008 financial crisis, more companies have steadily increased dividend payments. The article suggests that this trend may not reverse anytime soon, given the health of corporate balance sheets and the amount of extra cash on hand. Free cash of S&P 500 companies is still at more than twice it was five years ago.
Furthermore, net debt of S&P 500 companies relative to EBITDA – earnings before interest, taxes, deprecation and amortization – is still two turns less than its trailing ten year average as a result of de-leveraging and de-risk following the financial crash.
Nevertheless, it should be noted that companies are paying out a historically low level of their earnings to shareholders, which may leave room for more dividend payouts down the line.
A few broad-based U.S. focused dividend ETFs:
- SPDR S&P Dividend ETF (NYSEArca: SDY) yields 2.83%
- Vanguard Dividend Appreciation ETF (NYSEArca: VIG) yields 1.86%
- iShares High Dividend Equity Fund (NYSEArca: HDV) yields 3.64%
For more information on dividend funds, visit our dividend ETFs category.
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.