Although the Federal Reserve is nearing a June interest rate hike, that move may not hinder dividend stocks and exchange traded funds as much as some income investors think. Additionally, dividend growth stocks could prove particularly sturdy in the event of an interest rate increase.
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.
The SPDR S&P Dividend ETF (NYSEArca: SDY) is one ETF that specializes in dividend growth as it follows a dividend aristocrats index that mandates member firms have minimum dividend increase streaks of 20 years.
Dividend growth as a means of trumping inflation could and arguably should serve to highlight the advantages of the ETFs that focus on dividend growth stocks. That group is comprised of well-established ETFs that emphasize dividend increase streaks as well as a new breed of funds that look for sectors chock full of stocks that have the potential to be future sources of dividend growth.[related_stories]
Companies that have consistently raised dividends also exhibit stable balance sheets and consistent earnings growth. And SDY provides consistent dividend growth via its underlying index, which mandates member firms have dividend increase spanning at least 20 years.