Dividend investing is rightfully framed as a long-term investing style. Indeed, over the long haul, dividends account for significant percentages of portfolio returns, and that proposition is enhanced by reinvesting payouts.
In simple terms, reinvesting dividends puts the power of compounding on investors’ side. Over the long term, that’s an effective, lower-risk avenue for boosting. Some dividend exchange traded funds are ideal for that strategy, including the SmartETFs Dividend Builder ETF (DIVS).
“To understand how that can boost your investment performance, calculate a stock’s dividend yield by dividing the amount of cash you receive annually from a single share of stock into the share price. If you own a stock that’s worth $50 per share and you get $1 for every share you own, that stock yields 2%,” reported Ryan Ermey for CNBC.
This year, high-dividend stocks and ETFs are leading in the world of payout-oriented assets. High-dividend stocks are applicable in the dividend reinvesting conversation, but when it comes to long-term payout reinvestment, dividend growth is vital to investors.
That notion confirms the utility of DIVS. The actively managed ETF eschews an emphasis on yield to focus on dividend stocks with durable quality traits. One of the hallmarks of the quality factors is shareholder rewards, including dividends. Moreover, stocks with quality traits have the ability to not only service current dividend obligations but grow payouts over time, making dividend growth the ideal platform for payout reinvesting.
“Add in reinvested dividends, and you can see the power of compounding interest on the extra cash take hold. Factoring in total return, a $10,000 would now be worth $329,300. That means dividends accounted for a whopping 68% of the broad market’s total return over that period,” according to CNBC. “If you’re not already reinvesting the dividends in your portfolio, you can set up automated reinvestment through just about any online brokerage account. If you own a fund that tracks the S&P 500, you’re boosting your return by the index’s aggregate yield of 1.6%.”
Another factor investors need to consider when it comes to dividend reinvestment is sector attribution. Some sectors are better suited to dividend reinvestment than others. Those include consumer staples, healthcare, and technology, among others. DIVS features ample exposure to those groups.
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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.