Why It's Time to Consider High Dividend ETFs

An array of dividend-themed exchange traded funds have gotten relief this year as the Federal Reserve has held off on raising interest rates, particularly those funds emphasizing high yield asset classes and sectors.

The PowerShares High Yield Equity Dividend Achievers Portfolio (NYSEArca: PEY) is one of those ETFs, but there are signs that this fund can remain durable relative to some other high-yield dividend options.

Stocks with steady dividend yields reassure investors of a company’s strong financial health. Additionally, dividend-paying stocks typically outperform those that do not pay over the long haul, with less volatility, due to the compounding effect of dividends on the investment’s overall return.

Over the past 40 years, companies that boost payouts have proven to be less volatile than their counterparts that cut, suspended or did not initiate or raise dividends. [Read more: Fight Inflation With Dividend ETFs]

The potentially unsustainable dividend payouts in the energy sector could pressure more so-called high dividend ETFs that weigh components based on payouts.

“PEY follows the Nasdaq U.S. Dividend Achievers Index, which selects companies based on a combination of dividend growth and yield. This ETF holds 50 companies with over 42% of the fund’s combined weight allocated to the utilities and energy sectors,” according to InvestorPlace.

Dividend growers provide an aspect of quality and growth since these firms have a long track record of raising dividends.