There were some compelling data points out Monday that underscore just how much the dividend investing phenomenon has benefited exchange traded funds.
S&P Dow Jones Indices said “Net dividend increases rose $12.7 billion during the fourth quarter of 2013 for U.S. domestic common stock, compared to an $8.4 billion increase in the fourth quarter of 2012. 885 dividend increases were reported during the quarter, significantly lower than the tax incentivized 1,266 companies which raised dividends in 2012, but up 36.4% from the 649 companies which raised dividends in 2011.” [Dividends Rise, but Payout Ratios Remain Low]
BlackRock (NYSE: BLK) added that dividend ETFs pulled in $29 billion last year, meaning payout funds accounted for the majority of inflows to smart beta ETFs. [ETF Inflows Reach a Record in 2013]
Some dividend indices impressed as well. The Dividend Achiever index family had an impressive year, with the NASDAQ US Broad Dividend Achievers Index returning over 26% in 2013. In addition, the NASDAQ US Dividend Achievers Select Index, which is comprised of a select group of securities with at least ten consecutive years of increasing annual regular dividend payments, rose over 29%. Finally, the NASDAQ US Dividend Achievers 50 Index, the narrowest of the three indexes, returned over 31% in 2013, according to NASDAQ OMX Global Indexes.
1-Year Performance Chart
Chart Courtesy: NASDAQ OMX Global Indexes
Some of those indices should ring bells for ETF investors because they are linked to well-known dividend funds. For example, the NASDAQ US Broad Dividend Achievers Index is the underlying index for the $340.4 million PowerShares Dividend Achievers Portfolio (NYSEArca: PFM). To be included among PFM’s 210 constituents, companies must have dividend increase streaks of at least 10 years.
PFM’s top-10 holdings include Exxon Mobil (NYSE: XOM), Wal-Mart (NYSE: WMT) and PepsiCo (NYSE: PEP). Speaking of 10-year dividend increase streaks, that is the requirement for admission into NASDAQ Dividend Achievers Select Index, the index behind the Vanguard Dividend Appreciation ETF (NYSEArca: VIG).
VIG is the largest U.S. dividend ETF by assets and has been widely embraced cost-conscious income investors because of its 0.1% annual expense ratio. Top-10 holdings include Procter & Gamble (NYSE: PG), Pepsi and Exxon. [ETFs for Stocks With Consistent Dividend Growth]
The PowerShares High Yield Equity Dividend Achievers Portfolio (NYSEArca: PEY) tracks the US Dividend Achievers 50 Index. PEY, which is home to $360.3 million in AUM and a trailing 12-month yield of 3.31% does an admirable job of mixing large-, mid- and small-caps and pays a monthly dividend.
Indices from NASDAQ Global Indexes are also linked to other well-known ETFs such as the PowerShares International Dividend Achievers Portfolio (NYSEArca: PID) and the First Trust NASDAQ Technology Dividend Index Fund (NasdaqGS: TDIV). [Checkout These Digital Dividend ETFs]
Cumulative Returns of NASDAQ Dividend Indices
Source: NASDAQ OMX Global Indexes