S&P 500 dividends set records last year, but payout growth is forecast to be even better in 2021. Investors can capitalize on that theme with active strategies such as the T. Rowe Price Dividend Growth ETF (TDVG).

This actively managed ETF seeks to provide clients with a growing stream of dividend income and superior risk adjusted returns. It’s a philosophy that has not changed since the inception of its mutual fund counterpart, the T. Rowe Price Dividend Growth Fund, which launched in 1992.

TDVG invests at least 65% of its total assets in dividend-paying stocks, emphasizing companies that are expected to increase their dividends over time. More specifically, the portfolio typically invests in between 100 and 125 dividend paying companies, including holdings like Microsoft (MSFT), Apple (APPL), and Visa (V).

Time for the TDVG ETF?

With 2021 poised to be a better year for dividend stocks, TDVG could be a credible active idea for investors.

Dividends are in demand as fixed-income investors face a lower-for-longer interest rate environment. The Federal Reserve is expected to maintain its near-zero interest rate policy to help push inflation up, bolster the economy, and lower the unemployment rate. The Fed has already stated it was willing to let inflation run higher to offset years inflation fell below its 2% target.

Companies are increasingly confident in growing dividends again, even as another surge in Covid-19 cases threatens earnings. According to FactSet estimates, S&P 500 per-share earnings are expected to bounce 22% in 2021—to above 2019 levels.

TDVG YTD Performance

As a result, companies are feeling better about returning more of their capital to shareholders. S&P 500 dividends are expected to grow 3% in 2021 from 2020, according to FactSet. The payout ratio—the percent of earnings companies use to pay dividends — is expected to fall to about 35% from 42%, but the pure growth in dividend dollars still provides an attractive yield opportunity at current prices.

Investors should consider quality dividend growth stocks that typically exhibit stable earnings, solid fundamentals, strong histories of profit and growth, commitment to shareholders, and management team conviction in their businesses.

For more on active strategies, visit our Active ETFs Channel.

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.