Domestic dividends rebounded mightily last year, underscoring benefits associated with an assortment of exchange traded funds, including the Invesco Dividend Achievers ETF (NASDAQ: PFM).
PFM tracks the NASDAQ US Broad Dividend Achievers Index, which is exclusive territory among payout benchmarks, as member firms must have boosted dividends for at least 10 straight years prior to admission. That’s a trait that many investors gravitate to, and it’s worth noting at a time when dividend growth is eclipsing records and more of the same is expected this year.
As far as S&P 500 dividends go, which is relevant to PFM investors because many of its holdings reside in that index, “Q4 2021 U.S. common dividend increases were $20.6 billion, down 7.5% from $22.2 billion in Q3 2021 and up 48.5% from $13.9 billion in Q4 2020,” says S&P Dow Jones Indices. “Net indicated dividend rate change increased $18.0 billion, compared to $20.9 billion in Q3 2021, and $9.5 billion in Q4 2020.”
PFM is all the more pertinent today, due in part to the aforementioned dividend increase streak requirement. Not only do many of PFM’s member firms far exceed that 10-year mandate, but when companies enter the rarefied air of multi-decade dividend increase streaks, they’re loath to cut or suspend those payouts. That’s an important consideration at a time when some corporations are taking it slow when it comes to dividend increases.
“Within the S&P 500, companies still appear cautious of increases, as they paid out the lowest percentage of quarterly earnings in over a decade, but still set a dividend payment record in Q4 and 2021,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. “While COVID continues to dominate the headlines, the market continues to post significant gains, which has reduced yields. Based on the historical dividend increase rate and current indicated dividend rates, 2022 is on track to set another record in 2022, with COVID determining the increase amount.”
PFM could also deliver for investors this year even as interest rates rise. Higher rates can pinch high dividend stocks, but PFM’s yield is 1.73% — not alarmingly high. Additionally, PFM’s exposure to sectors, such as utilities and real estate, that are negatively correlated to rising rates is low. Conversely, PFM allocates about 28% of its weight to the healthcare and financial services sectors. The former isn’t rate-sensitive, and the latter usually benefits from rate tightening.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.