As bond yields turn, income-starved investors can take a look at relatively high-yield dividend stocks and related exchange traded funds.
According to Andrew Garthwaite, a global equity strategist at Credit Suisse Group AG, investors should focus on dividend stocks as an alternative to low-yield bonds, reports David Wilson for Bloomberg.
Looking at the Standard & Poor’s 500 Dividend Aristocrats Index, the so-called dividend aristocrats typically outperfomed the S&P 500 index since 1999 when the yield on 10-year Treasury notes dipped, or underperformed the S&P 500 when 10-year yields rose.
The SPDR S&P Dividend ETF (NYSEArca: SDY), which is benchmarked to the S&P High Yield Dividend Aristocrats Index, only dipped 0.04% year-to-date as 10-year Treasury yields fell from about 2.2% at the start of the year to 1.8%, whereas the SPDR S&P 500 ETF (NYSEArca: SPY) was down 0.34%. Over the past year, SDY rose 20.5% while SPY gained 19.9%.
The aristocrat dividend stock gauge tracks shares of companies that have increased dividends annually for at least 25 years. SDY has a 2.27% 12-month yield. [Quality Dividend ETFs with Consistent Yields]
For the slightly more adventurous, there are a number of high-yield dividend stock ETF options available. For instance, the PowerShares S&P 500 High Dividend Portfolio (NYSEArca: SPHD) has a 3.28% 12-month yield, iShares Core High Dividend ETF (NYSEArca: HDV) has a 3.27% 12-month yield and RevenueShares Ultra Dividend Fund (NYSEArca: RDIV) has a 3.24% 12-month yield. Over the past year, SPHD rose 27.7%, HDV increased 20.7% and RDIV gained 31.0%.
“Low bond yields allow dividend yield as a style to outperform,” Garthwaite said. The relationship “has been particularly close in the U.S.”
Garthwaite also warned that the correlation has not manifested in European equities as high-dividend stocks in Europe fell behind in recent months while government bond fell. For instance, the Euro Stoxx 50 Index rose 15.2% over the past year, whereas something like the First Trust STOXX European Select Dividend Index Fund (NYSEArca: FDD), which tracks dividend-paying European stocks, gained 7.3% over the past year.
For more information on dividends, visit our dividend ETFs category.
Max Chen contributed to this article.