Dividend-paying stocks and related ETFs have helped ease the pain as U.S. equity markets pulled back this year, and the strategy may continue to be an attractive defensive play ahead.
S&P 500 companies have spent almost $421 billion on dividends for the year through November, a record setting amount that outpaced last year’s $391 billion for the period and the full year total of $420 billion, the Wall Street Journal reports. Furthermore, over two dozen companies have announced additional dividend increases this month, which could push the year’s total to an even higher level.
Investors are enjoying the dividend growth due to a surge in company profits following last year’s broad corporate tax cuts. However, some are worried that the benefits of the corporate tax cuts are a one-off event, with some bracing for tougher conditions ahead.
“There was a confluence of a couple of things that contributed to dividends that won’t happen again,” Jim Tierney, chief investment officer of concentrated U.S. growth at AllianceBernstein, told the WSJ. “Far more companies brought their dividends back and were more comfortable paying that higher dividend, driven by earnings growth.”
Nevertheless, analysts are predicting another potentially banner year for dividends in 2019 if profit growth ends up at around current expectations. According to Goldman Sachs, dividends are estimated to still rise 6% next year, although lower than the 9% rate of 2018.
“Can the pace of dividend growth continue? Not a chance,” Tierney said. “Will the level of dividends continue? Maybe, but certainly not the rate of growth.”
ETF investors can also target U.S. dividend growers through a number of options. For instance, the iShares Core Dividend Growth ETF (NYSEArca: DGRO) specifically targets companies that pay a qualified dividend, must have at least five years of uninterrupted annual dividend growth and their earnings payout ratio must be less than 75%. DGRO shows a 2.21% 12-month yield.