Dividend Stocks, ETFs Are Losing Steam

Quality, dividend-paying stocks and exchange traded funds have been among the best performers this year as investors turned to a relatively undervalued segment of the market following the sell-off in growth stocks. However, the dividend play has been losing momentum in recent months, underperforming broader markets.

High-quality, dividend stock ETFs have fallen out of favor. Over the past three months, the Vanguard Dividend Appreciation ETF (NYSEArca: VIG) fell 3.6%, SPDR S&P Dividend ETF (NYSEArca: SDY) dropped 5.7% and ProShares S&P 500 Aristocrats ETF (NYSEArca: NOBL) declined 6.6% while the S&P 500 Index retreated 3.0%.

The pullback in the dividend space may be attributed to the lower expected payouts ahead after a share of earnings paid out to shareholders surged in recent years.


According to FactSet data, U.S. companies have doled out a little over 38% of earnings in dividends, or close to the same percentage paid during the height of the financial downturn when the dividend payout ratio surged following a fall in earnings.

The trend of rising dividends may not last and could even reverse over the next year as rising bond yields make riskier dividend-paying stocks less attractive to investors.