Banner Year of Dividend Growth Sends Cash to Dividend ETFs

U.S. dividend increases fell slightly last year $54.8 billion from $54.9 billion in 2013, but that modest downtick does little to damage the broader dividend growth thesis. Nor was 2014’s slightly lower level of dividend growth enough to keep investors from pouring billions of new capital into dividend exchange traded funds.

“According to S&P Dow Jones Indices, 971 dividend increases were reported during the fourth quarter of 2014 compared to the 885 increases which were reported during the fourth quarter of 2013. For all of 2014, 3308 issues increased their payments, up 14.3% from the 2895 issues that increased their payments during 2013,” said S&P in a note out Wednesday.

With dividend growth on the rise, investors poured over $10 billion into dividend ETFs last year, once again making payout funds the primary drivers of asset growth for strategic beta ETFs. [Smart Beta ETFs Keep Winning]

In 2014, the four largest U.S. dividend ETFs – the Vanguard Dividend Appreciation ETF (NYSEArca: VIG), Vanguard High Dividend Yield ETF (NYSEArca: VYM), iShares Select Dividend ETF (NYSEArca: DVY) and the SPDR S&P Dividend ETF (NYSEArca: SDY) – added over $4.1 billion in new assets combined.

Last year, the best-performing dividend ETFs were those with large utilities sector allocations. Buoyed by a significant drop in 10-year Treasury yields, the utilities sector was the best performer in the S&P 500. For example, DVY and the RevenueShares Ultra Dividend Fund (NYSEArca: RDIV) returned an average of 16.5% last year. Those ETFs have an average utilities weight of 37.7%. [Dividend ETFs With Big Utilities Exposure]

While utilities remain a favorite destination for income investors, dividend growth opportunities continue to appear to in the technology and financial services sectors, the two largest sector weights in the S&P 500.

“On a sector basis, using the S&P 1500 as the benchmark for U.S. domestic common issues, that 1,012 issues now pay regular cash dividends up from 1,000 in Q3 2014 and 990 at the end of Q2 2014. Nine Financial sector issues increased in Q4, after four issues increased during Q3. As a result, 91.2% of the issues in the Financials sector paid a cash dividend, up from 89.9% in the third quarter. Issues paying a dividend in the Information Technology sector increased to 40.1% from 38.6% in Q3, but remain the sector with the lowest percentage of issues paying,” says Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices.

Among ETFs with large weights to financials and tech names, the WisdomTree Total Dividend Fund (NYSEArca: DTD) and the WisdomTree U.S. Dividend Growth Fund (NasdaqGM: DGRW) saw robust 2014 asset growth on a percentage basis.