In today’s low yield environment, more investors are looking to supplant their exposure to safe haven bonds with higher-yielding assets and one way is via dividend ETFs. A MarketWatch report by Michael Brush offered some sage advice from stock investing pros for dividend investing, which could also translate to dividend ETFs.
All in all, there were nine secrets offered, but here are a couple that can point ETF investors in the right direction when looking to dividend-yielding assets:
- Choose dividend growers
- Look for quality companies with a high return on capital
It’s one thing to look for assets that offer a high rate of dividends, but just how long can that yield last? That’s why it’s necessary for investors to choose assets that can support dividend growth over time.
“Dividend stocks outperform, as a group, but companies with a history of increasing dividends do better, whereas companies with flat dividends tend to be more average,” Brush wrote. “You want to own shares in companies that are likely to continue hiking dividends. To find those, look for these next four qualities.”
Secondly, it’s necessary to choose companies or ETFs that focus on quality yield. High-yielding assets could come with high-risk, so for investors who don’t have a cast iron stomach for risk, then quality is a must–especially investing in companies with a solid track record of dividends.
“Companies with a long history of investing smartly in their business will probably continue to spend wisely,” Brush wrote. “This means they’ll have more sustainable cash flow, so they’re more likely to keep hiking dividends. A good long-term investment record is key. Studies show companies with a great investment track record over 10 years have a 95% chance of repeating their success over one year, and an 80% chance of doing so over four years.”
Dividend ETF Options
ETF investors can do that same with funds like the Invesco Dow Jones Industrial Average Dividend ETF (NYSEArca: DJD). DJD seeks to track the investment results of the Dow Jones Industrial Average Yield Weighted. The underlying index is designed to provide exposure to dividend-paying equity securities of companies included in the Dow Jones Industrial Average™, which is a price-weighted index of 30 U.S. companies that meet certain size, listing and liquidity requirements.
When playing the dividend ETF game, it’s necessary to not just look at funds that offer the highest dividends, but also those that look to sustaining growth like the WisdomTree U.S. Quality Dividend Growth Fund (NasdaqGM: DGRW). DGRW seeks to track the price and yield performance of the WisdomTree U.S. Quality Dividend Growth Index. The index is a fundamentally weighted index that consists of dividend-paying U.S. common stocks with growth characteristics.
Another option is the ProShares S&P 500 Aristocrats ETF (CBOE: NOBL), should be an area of emphasis for income investors. NOBL tracks the S&P 500 Dividend Aristocrats Index, targets the cream of the crop, only selecting components that have increased their dividends for at least 25 consecutive years. Consequently, investors are left with a portfolio of high-quality, sustainable dividend payers.
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