The industrial sector, the fifth-largest sector weight in the S&P 500, could deliver some dividend growth to investors before the end of 2014, providing a potential lift to industrial and dividend exchange traded funds.
Three of the of the largest industrial companies, Dow components General Electric (NYSE: GE), 3M (NYSE: MMM) and Boeing (NYSE: BA), could boost payouts before the year-end, reports Jon Ogg for 24/7 Wall Street.
Although General Electric (NYSE: GE) was a dividend cutter during the financial crisis, the company’s quarterly payout has nearly doubled since the third quarter of 2010, the time of its first post-crisis dividend increase. Prior to the financial crisis, GE’s dividend increase streak spanned multiple decades and the company’s recent dividend hikes show GE’s commitment to shareholder payouts has been reborn.
GE is the largest holding in the Industrial Select Sector SPDR (NYSEArca: XLI), accounting for nearly 10% of the largest industrial sector ETF’s weight. [Industrial ETFs Defying Strong Dollar]
Boeing will not be confused with the likes of Johnson & Johnson (NYSE: JNJ) and Procter & Gamble (NYSE: PG) in terms of length of dividend increase streaks (the company did not raise its dividend in 2010). However, Boeing’s most recent dividend hike was a 50.5% boost. The stock is XLI’s fifth-largest holding at a weight of almost 4.7%.
3M, XLI’s third-largest holding at weight of nearly 5.3%, is the only stock of the three highlighted here that is a member of the S&P 500 Dividend Aristocrats Index. That index mandates companies have dividend increase streaks of at least 25 years for inclusion.
While GE and Boeing are not members of that index, that does not mean industrial are not dependable dividend growers. The ProShares S&P 500 Aristocrats ETF (NYSEArca: NOBL), which tracks theS &P Dividend Aristocrats Index, allocates 12.3% of its weight to industrials, good for the ETF’s third-largest sector allocation. [Checking in With Dividend Aristocracy]
The SPDR S&P Dividend ETF (NYSEArca: SDY), which tracks the S&P High Yield Dividend Aristocrats Index, a high-yield counterpart to NOBL’s index, devotes 14.5% of its weight to industrial stocks. The industrial sector is also the third-largest in SDY, one of the largest U.S. dividend ETFs.
There is room for dividend growth among industrials. For example, XLI’s dividend yield is just 1.73%, or four basis points below the yield on the S&P 500.
At the end of the second quarter, the industrial sector’s dividend yield was slightly below its 10-year average while its trailing 12-month payout ratio was in-line with its 10-year average and below that of five other sectors, according to FactSet data.
Industrial Select Sector SPDR
