Like Dividend Growth? You’ll Love These ETFs

Although dividend increases slowed a bit in the second quarter, the 12-month figures are still strong. For the 12 months ended June 30, nearly 3,100 companies boosted payouts while fewer than 400 cut dividends, according to S&P Dow Jones Indices.

“In the second quarter, 562 of these increases occurred. In contrast, just 389 companies decreased their dividend payments in the 12-month period ended June, with 85 of them occurring in the second quarter. The nearly 8-to-1 increase/decrease ratio confirms that companies are returning more cash to shareholders,” according to a new research note from S&P Capital IQ.

There are myriad dividend exchange funds with which investors can use to tap dividend growth. In fact, dividend ETFs have been among the primary drivers of the smart or strategic boom.

“Overall, smart beta ETFs accounted for 17% of US net ETF inflows in 2014, despite representing less than 11% of total assets. Today there are more than 350 smart beta ETFs available in the U.S. comprising over $230 billion in AUM, up from just 212 products and $64.8 billion in 2010,” according to the PowerShares study. [Smart Beta ETFs Keep Gaining Traction]

Home to $20.5 billion in assets under management at the end of May, the Vanguard Dividend Appreciation ETF (NYSEArca: VIG) is the largest U.S. dividend ETF. VIG has established that massive following for several reasons, including a paltry 0.1% annual fee, which makes it less expensive than 90% of rival funds, and a mandate that requires constituent companies to have dividend increase streaks of at least 10 years.

While some dividend ETFs have been battered this year as 10-year Treasury yields have risen, VIG should prove durable as rates rise because it features scant telecom and utilities exposure. The ETF is highly leveraged to the consumer with staples and discretionary names combining for nearly 39% of the fund’s weight.

VIG has a 13.7% weight to the technology sector, which is high among dividend ETFs. That gives the ETF some leverage to a sector that has been a major source of dividend growth in recent years. Three tech stocks – Microsoft (NasdaqGS: MSFT), IBM (NYSE: IBM) and Qualcomm (NasdaqGS: QCOM) – are found among VIG’s top 10 holdings. However, due to VIG’s dividend increase streak requirement, Apple (NasdaqGS: AAPL) has another eight years to go before it join the fund. [Dividend ETFs Still Lack Tech Exposure]

Investors looking for exposure to Apple in a dividend ETF should turn to the $538 million WisdomTree U.S. Dividend Growth Fund (NasdaqGM: DGRW).