With rates depressed and attractive yields hard to come by in the fixed-income market, investors may want to consider dividend-paying stocks and related ETFs.
Goldman Sachs argued that dividend payers are trading at their cheapest levels in nearly four decades relative to stocks with low yields, CNBC reports.
“With the 10-year Treasury yield at just 1.5% and the Fed likely to cut two more times this year, investors should look for opportunities in dividend stocks,” Goldman chief U.S. equity strategist David Kostin said in a note.
Treasury yields have plunged in recent weeks as investors shifted over to the relative safety of government bonds amidst the broad selloff in equities. The slowing global economy, intensifying trade war and low-rate outlook have all contributed to the continued rally in fixed-income assets and falling yields.
Consequently, Goldman Sachs advised investors to look to stocks with more steady dividend income. U.S. companies are raising dividends steadily with the S&P 500 dividends rising by 9% in the first and second quarters this year, Kostin said. Looking ahead, Goldman calculated S&P 500 annualized dividend growth to be 3.5% over the next decade.
Dividend-paying stocks provide steady income in volatile conditions. Goldman also screens for stocks with big dividends and low labor costs in portfolios for its own clients.
Popular Dividend ETF Plays
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 2.25% 12-month yield.
The ProShares S&P 500 Aristocrats ETF (NYSEArca: NOBL) only targets S&P 500 companies that have increased their dividends for at least 25 consecutive years and offers a 1.99% 12-month yield.
The Vanguard Dividend Appreciation ETF (NYSEArca: VIG), the largest dividend-related ETF on the market, tracks U.S. stocks that have increased dividends on a regular basis for at least 10 consecutive years and has a 1.82% 12-month yield.
The Schwab US Dividend Equity ETF (NYSEArca: SCHD) includes 100 stocks based on strong fundamentals, such as cash flow to debt, return on equity, dividend yield and consistent dividend payouts for at least 10 consecutive years, and it has a 2.86% 12-month yield.
The Invesco Dividend Achievers ETF (NYSEArca: PFM) also selects companies that have increased annual dividends for 10 or more consecutive fiscal years. The ETF comes with a 1.91% 12-month yield.
The SPDR S&P Dividend ETF (NYSEArca: SDY) holds firms that have a minimum dividend increase streak of 20 years for inclusion and shows a 2.38% 12-month yield. Moreover, SDY follows a yield-weighting methodology that allocates a larger weight toward those with higher yields, so the portfolio leans toward more mid-sized companies.
The WisdomTree U.S. Quality Dividend Growth Fund (NasdaqGM: DGRW) includes companies with high long-term earnings-growth forecasts for the next three to five years and weights components based on the value of dividends they are expected to pay over the next year. DGRW has a 2.27% 12-month yield.
For more information on dividend stocks, visit our dividend ETFs category.