The case for dividend stocks, particularly those that are reliable growers of their payouts, remains strong in 2019.

Analysts are predicting another potentially banner year for dividends in 2019 if profit growth ends up at around current expectations. According to Goldman Sachs, dividends are estimated to still rise 6% next year, although lower than the 9% rate of 2018.

Among the exchange traded funds (ETFs) focusing on dividend growth is the SPDR S&P Dividend ETF (NYSEArca: SDY). SDY, one of the largest U.S. dividend ETFs, holds firms that have a minimum dividend increase streak of 20 years. 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. Historical data confirm that dividends are major contributors to investors’ long-term, total returns.

“Over the past 30 years, dividends from S&P 500 stocks have, on average, contributed exactly half of the index’s total return on an annual basis,” said State Street in a recent note. “While price returns of equities can fluctuate year over year, dividends tend to be more stable, consistently offering a positive contribution to total return each year.”

Other Advantages of SDY

SDY is up 11.65% this year and resides near record highs. As a dividend growth strategy, SDY offers some advantages over yield-based dividend ETFs.

“Due to the index screen for 20 years of consecutively raising dividends, stocks included in the Index have both capital growth and dividend income characteristics, as opposed to stocks that are pure yield,” according to State Street.

SDY holds 111 dividend stocks with none exceeding a weight of 2.41%, which helps keep concentration risk in the portfolio low. The fund allocates just over 34% of its combined weight to industrial and financial services stocks. The consumer staples and utilities sectors, which are often prized for above-average yields, combine for almost 24% of SDY’s roster. Dividends also provide buffers against market volatility.

“Dividend stocks have historically weathered market volatility better than the broader equity market, as dividends may provide some cushion to capital losses,” said State Street. “Dividend focused strategies have produced higher quarterly returns than the S&P 500 Index over the last 18 years when the S&P 500 has fallen in a given quarter—and at a strong hit rate as well, with numerous periods of outperformance indicating consistency and persistence.”

For more information on dividend stocks, visit our dividend ETFs category.

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