Along with a steady income stream, many dividend stock exchange traded funds have provided a healthy amount of price appreciation, bolstering investor portfolios with an attractive way to capture broad market returns.
For example, the PowerShares High Yield Equity Dividend Achievers Portfolio (NYSEArca: PEY), which has accumulated $436.8 million in assets under management, has increased 9.2% year-to-date.
The High Yield Equity Dividend Achievers Portfolio takes a similar approach as the PowerShares Dividend Achievers Portfolio (NYSEArca: PFM) – both ETFs track a group of stocks with consistent growth in dividends. [A Dividend ETF’s Quiet Ascent]
However, PEY selects the dividend achievers with the highest yields. Consequently, the diverging indexing methodologies produce varying dividend yields as PEY has a trailing 12-month yield of 3.28%, whereas PFM has a 1.77% yield. Moreover, PEY issues a monthly dividend that is paid out around mid-month.
Stocks with steady dividend yields reassure investors of a company’s strong financial health. Additionally, dividend-payin stocks typically outperform those that do not pay over the long haul, with less volatility, due to the compounding effect of dividends on the investment’s overall return. Over the past 40 years, companies that boost payouts have proven to be less volatile than their counterparts that cut, suspended or did not initiate or raise dividends. [Fight Inflation With Dividend ETFs]
PEY shows a 5-year Sharpe ratio, a measure of risk-adjusted performance, of 1.44, compared to the S&P 500 index’s 1.25, according to Morningstar data. A larger Sharpe ratio corresponds with a better risk-adjusted return.