The technology sector, the largest sector weight in the S&P 500, has been a key driver of U.S. dividend growth over the past several years, but that has not been enough to earn the group marquee status in some of the largest dividend exchange traded funds.
“Many of the market’s most popular dividend-paying ETFs own very little of the tech sector, even though its stocks were the No. 1 contributor of dividends paid out by companies in the Standard & Poor’s 500 in each of the past three years,” Chris Dieterich reports for Barron’s, citing Howard Silverblatt, senior index analyst for S&P Dow Jones Indices.
For example, the iShares Select Dividend ETF (NYSEArca: DVY) and the SPDR S&P Dividend ETF (NYSEArca: SDY), home to a combined $33.4 billion in assets under management, have tech weights of just 1.8% and 2.6%, respectively. The Vanguard Dividend Appreciation ETF (NYSEArca: VIG), the largest U.S. dividend ETF by assets, is better with a 12.8% tech allocation, but just three stocks – Microsoft (NasdaqGS: MSFT), International Business Machines (NYSE: IBM) and Qualcomm (NasdaqGS: QCOM) – combine for 10.2% of VIG’s tech exposure. [Dividend ETFs Lag in Q1]
The $10.9 billion Vanguard High Dividend Yield ETF (NYSEArca: VYM), another one of the four largest U.S. dividend ETFs, also has a 12.8% weight to tech stocks.
With tech companies sitting on massive cash hoards, Apple’s (NasdaqGS: AAPL) is $194 billion as just one example, tech dividend growth is expected to continue flourishing. That means investors looking to capture tech dividend growth via ETFs should consider funds beyond the usual suspects.
“Dividend consistency matters, especially to investors who depend on predictable dividend income, and index-tracking ETFs can be burned by too much exposure to the dividend payers du jour,” according to Barron’s.
The First Trust NASDAQ Technology Dividend Index Fund (NasdaqGS: TDIV) does not require a dividend increase streak for admittance because the concept of technology sector dividends is still a relatively new phenomenon.