ETF Trends
ETF Trends

By Todd Rosenbluth, CFRA

The S&P 500’s 9.3% total return in the first half of 2017 was driven by sectors with below-average dividend yields, while higher-income-generating sectors lagged behind. Indeed, non-dividend-paying stocks across all sectors in the benchmark had an 8.8% total return, stronger than the 7.6% gain for dividend payers. Nonetheless, the second quarter of 2017’s $104 billion in dividend payments by S&P 500 constituents, up from 7.4% from a year earlier, serves as a reminder that dividend growth has persisted.

The more economically sensitive technology and consumer discretionary sectors contributions to the S&P 500’s indicated dividend rate has climbed to 15.5% and 9.0%, respectively, at the end of June 2017, up from 14.7% and 8.1% at the end of 2012. In the first half of 2017, the S&P 500 technology (up 17%) and consumer discretionary (up 11%) sectors were among the top total return performers.

While most dividend ETFs covered by CFRA are trailing the 11.7% year to date return for the S&P 500 index, CFRA’s Overweight ranked WisdomTree US Quality Dividend Growth Fund (DGRW) is a bright spot rising 13.3% over the same time horizon. Relative to other dividend-growth ETFs, some of which we will highlight below, DGRW contains more exposure to technology (20%) and consumer discretionary (17%) assets in the portfolio through May.

While DGRW has performed well this year, it’s what’s inside the fund that CFRA likes. CFRA Strong Buy recommended Apple (AAPL), Buy recommended Home Depot (HD) and Buy recommended McDonald’s (MCD) are among the top holdings in these sectors.

Related: The Best Performing ETF of 2017 Is… 

Another strong performing dividend growth ETF CFRA favors is Vanguard Dividend Appreciation Index Fund (VIG) up 11.1%. Unlike DGRW, VIG focuses on companies with a record of ten consecutive years of dividend increases. While technology (13%) and consumer discretionary (8%) asset exposures are lower than DGRW, industrials exposure (27% vs.19%) is higher.

Meanwhile, VIG stakes in telecom and utilities are minimal (combined 2.2%) and there are no REITs. VIG’s Overweight ranking is aided by holdings including Microsoft (MSFT) and United Technologies (UTX) both with above-average S&P Global Market Intelligence Quality Rankings.

Related: The 5 Best Performing ETFs of 2017

In contrast, ProShares S&P 500 Dividend Aristocrats (NOBL) and SPDR S&P Dividend (SDY), look at a company’s record of dividend hikes over a period of 25 and 20 years, respectively. As such, they both have much lower technology exposure (2% of assets), as the sector has a shorter history of dividend growth.

Todd Rosenbluth is Director of ETF & Mutual Fund Research at CFRA.