Dividends paid by S&P 500 member firms continued rising during the first quarter, but some of the major dividend exchange traded funds did not follow suit.
With just two days remaining in the first quarter, S&P 500 companies have paid out $93.6 billion in dividends, up 14% from the year-earlier period, marking the fourth consecutive quarter S&P 500 dividends have touched an all-time high, reports Michael Vallo for Barron’s.
Those increased payouts have not had much impact on the four largest dividend ETFs. The Vanguard Dividend Appreciation ETF (NYSEArca: VIG), iShares Select Dividend ETF (NYSEArca: DVY), SPDR S&P Dividend ETF (NYSEArca: SDY) and the Vanguard High Dividend Yield ETF (NYSEArca: VYM) have all traded lower to start 2015 even as the S&P 500 is higher by half a percent. [Buying Opportunity With a Favored Dividend ETF]
DVY has been especially hard hit, losing 1.7% as none of its aforementioned peers have lost more than 1%. While the $14.9 billion DVY, which yields 3% on a trailing 12-month basis is home to plenty of stocks that have raised and will raise dividends in the coming months, the ETF’s substantial utilities exposure is proving problematic. The ETF allocates nearly 32.6% of its weight to utilities stocks, almost triple its second-largest sector weight, and that is not a positive trait at a time when interest rate hike fears have the utilities sector ranking as the worst group in the S&P 500.
Lagging utilities stocks do not explain the woes encountered by all dividend ETFs. For example, VIG, the largest U.S. dividend ETF, has traded lower this year despite allocating less than 1% of its weight to utilities names. [Consistent Dividend ETFs]
More dividend increases are expected in the second quarter, but some investors are not waiting around to see how that affects the aforementioned dividend ETFs. Howard Silverblatt, senior index analyst at S&P Dow Jones Indices told Barron’s the second quarter will easily beat the first in terms of dividends paid. Silverblatt also noted May is a fertile period for dividend increases.
However, investors have pulled nearly $750 combined from DVY, SDY and VIG this year. VYM has added over $531 million in new assets.
Expected dividend increases to watch for in the coming weeks include those from Dow components Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX).
The ability of Chevron and Exxon to continuing raising dividends as oil prices plummet is important because while Wall Street and Main Street have been somewhat tolerant of the companies’ plans to trim exploration and production spending and suspend buybacks, not extending dividend increase streaks would universally be seen as a negative. [ETFs for Upcoming Dividend Increases]
Exxon is the largest S&P 500 dividend payer in dollar terms, having paid out nearly $11.6 billion in dividends on a trailing 12-month basis , according to FactSet data. Only six companies, including Exxon, paid more in dividends over that period than the $7.9 billion paid by Chevron.
Because Exxon and Chevron have lengthy histories of boosting dividends, the stocks are frequently found in ETFs that include dividend increase streaks as part of their weighting methodology. For example, VIG, which requires its holdings to have a minimum dividend increase streak of at least 10 years, features Exxon as a top 10 holding. If Exxon and/or Chevron cannot raise payouts this year, they will be expelled from ETFs that use dividend increase streaks as part of the stock selection criteria. [Bell Tolls for Energy Dividends]
Vanguard Dividend Appreciation ETF
Tom Lydon’s clients own shares of DVY.