Good Q1 for Dividends, but Some Payout ETFs Lost Cash

Net dividend increases totaled $17.8 billion in the first quarter, up almost 23% year-over-year. Nearly 1,100 dividend increases were reported during the quarter, displacing the prior first quarter record of 1,069 set in 1979. Q1 2014 is 14.2% higher than the 944 increases in Q1 2013, according to S&P Dow Jones Indices.

“Dividend increases were strong in Q1, as a record number of issues increased for the period,” says Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices. “Increases outnumbered decreases more than 10-to-1, as $17.8 billion in net increases were declared by U.S. domestic issues. Payments for the first quarter are estimated to have increased 15% over the first quarter of last year. Payout rates, which historically average 52%, continue to remain near their low at 36%.”

Despite the good dividend news, three of the four largest U.S. dividend ETFs suffered outflows in the first quarter with only the Vanguard High Dividend Yield ETF (NYSE: VYM) seeing inflows. The $256.4 million investors sent into VYM was not enough to stem the tide of the more than $820 lost by the three largest U.S. dividend ETFs. [Dividend ETFs That Beat Rising Rates]

Although nearly $66 million was pulled from the iShares Select Dividend ETF (NYSEArca: DVY) in the first quarter, those outflows belie a strong performance turned in by the second-largest dividend ETF. Helped in part by its almost 36% weight to the utilities sector, more than double any of its other sector allocations, DVY is up 4% year-to-date. The $13 billion ETF has a trailing 12-month yield of 3%. [Utilities Benefit More Than Just Sector ETFs]

Last year, assets allocated to dividend ETFs surpassed the cash in U.S. Treasury ETFs as payout funds were the top asset gatherers in the smart beta/intelligent index category. Despite outflows from some noteworthy dividend ETFs this year, not all comparable funds have lost capital. Some have attracted new cash and that could be a sign of things to come with 2014 shaping up to be another good dividend year.

“The strong rate of Q1 increases, coupled with the number of issues that have a demonstrated history of annual increases, could translate into a strong year for 2014,” said Silverblatt.

Some of the dividend funds that have seen inflows this year include the WisdomTree LargeCap Dividend Fund (NYSEArca: DLN), sports a distribution yield of 2.3%. Technology and financial services, two of the three leading sources of S&P 500 dividend growth over the past several years, combine for over 29% of DLN’s weight. Those sectors are often lightly represented in dividend ETFs that focus on length dividend increase streak as a primary weighting methodology. [Reevaluating a Familiar Dividend ETF]