Dividend Growth Persisted in Q4 | ETF Trends

By Todd Rosenbluth, CFRA

Investors added more than $10 billion in new money to dividend-focused ETFs in the fourth quarter of 2019 even as the stock market rallied into the end the year. According to S&P Dow Jones, there were 686 dividend increases in the fourth quarter of 2019, down from 787 a year earlier. Meanwhile, this year, there were 74 decreases, down from 77. The narrowed dividend breadth highlights the benefits of an ETF’s diversification.

Investors seeking equity income have a wide array of individual securities to consider. There are currently 423 constituents (84%) within the S&P 500 Index. While large-cap companies are more likely to pay a dividend, 69% of S&P MidCap 400 and 53% of S&P SmallCap 600 Index constituents also sport a dividend.

There are some compelling smart-beta ETFs offering dividend strategies to consider.

ProShares S&P 500 Dividend Aristocrats (NOBL) tracks the S&P 500 Dividend Aristocrats Index, holding 58 companies, including ABT and VFC, that have raised their dividend for 25 consecutive years. Consumer Staples (22% of assets) and Industrials (23%) were recently the largest sectors represented in the $6.5 billion ETF.

Investors that want an all-cap dividend product should consider the $20 billion SPDR S&P Dividend (SDY), which holds 113 large-, mid- and small-cap companies in the S&P 1500 Index. To make it into the index and the fund, companies need to raise dividends 20 years in a row. Industrials (19% of assets) and Consumer Staples (14%) were the largest sectors here too, but the weightings are lower than in NOBL. Meanwhile, SDY’s stake in Utilities (9%) was much higher than NOBL’s (2%).

The $41 billion Vanguard Dividend Appreciation Index ETF (VIG) differs from SDY and NOBL in two main ways. It is not tied to an S&P index and it requires only a 10-year run of raising dividends. As such, the more cyclical Information Technology sector is higher (17% of assets) than its peers. Visa (V) is one such top position that raised its dividend in the fourth quarter of 2019. However, investors can find a healthy stake in both Consumer Staples (16%) and Industrials (23%) in this diversified ETF too.

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