Dividend growth continues with U.S. payouts poised to hit another record this year. For weary investors, that relief arrives at an opportune time with inflation still running hot and with the specter of broader market volatility possibly reappearing later this year.
While investors have long been fond of passive approaches to dividends, including exchange traded funds, active management merits a place in the payout conversation, too. That’s particularly true for investors seeking access to baskets of stocks with enviable track records of dividend growth or those names with high distributions with the resources to support those lofty payouts.
Active management could be all the more fruitful for equity income investors amid compelling payout forecasts, including what arrived earlier this year when “nearly every US company in the Index (99%) increased their payments or held them steady, as dividends continued to be a reliable source of income growth for shareholders,” according to a statement issued by Janus Henderson.
“Globally, first quarter dividends jumped by 11% on a headline basis to a total of $302.5bn, also a record for the seasonally quieter first three months of the year. Underlying growth was even stronger at 16.1%. Janus Henderson’s analysis shows that dividends have more than doubled since 2009, when the Index launched,” noted the research firm.
Broadly speaking, the coronavirus bear market of 2020, albeit brief, caused dividend calamity, leading to about $220 billion worth of global payout cuts. That negativity is still fresh on the minds of some dividend investors, indicating that there are potential inroads to be made by active funds. While $220 billion is a massive number that implies no strategy is impervious to that level of duress, active managers can more readily identify companies that are likely to be dividend offenders than index-based strategies.
Another advantage of active dividend strategies is that these funds can more nimbly allocate to sectors with superior dividend growth prospects. Some sectors, such as consumer staples and healthcare, are known for steadiness, while others — energy and utilities as two examples — are known for big yields. On the other hand, technology is still in the early innings of its dividend story. Active management can harness those themes.
Active ETFs with exposure to the dividend factor include the T. Rowe Price Blue Chip Growth ETF (TCHP), the T. Rowe Price Dividend Growth ETF (TDVG), and the T. Rowe Price Equity Income ETF (TEQI).
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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.
