Related: Best of Both Worlds With This Dividend ETF
Company stocks that issue high yields may be masking their distressed books or may not be sustainable and are heading for dividend cuts. On the other hand, these quality dividend ETFs try to limit the impact of these value traps by selecting components based on a history of sustainable dividend growth.
“Due to the recent spate of negative dividend actions from the energy patch, that sector is lightly represented in SDY at a weight of just 3.2%. However, SDY’s largest sector weight is 24.2% allocated to financial services,” according to InvestorPlace. “That may surprise some dividend investors that remember rampant payout cuts from big banks during the financial crisis, but the bulk of SDY’s holdings from that sector are smaller banks and real estate investment trusts.”
Dividend growers provide an aspect of quality and growth since these firms have a long track record of raising dividends. Companies that have consistently raised dividends also exhibit stable balance sheets and consistent earnings growth.
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SPDR S&P Dividend ETF
