In the lower-for-longer yield for the environment, investors have taken a liking to dividend-producing exchange traded funds.
According to Morningstar data, net inflows into dividend-focused ETFs this year ended July 31 were nearly $25 billion, compared to net outflows of $1.8 billion in the year-earlier period, the Wall Street Journal reports.
U.S. company dividends have increased this year from 2020. Many companies last year began hoarding cash amid the coronavirus pandemic and economic uncertainty to potentially shore up their balance sheets in case of a steep fallout. Many managed to weather the storm, which has left companies flush with cash to deploy.
Consequently, 568 common dividend increases totaled $15.4 billion reported by S&P 500 companies over the second quarter, or up 130% from the $6.7 billion for the same quarter last year, according to S&P Dow Jones Indices.
On the other hand, only 29 companies that reported dividend decreases with a total of $2.5 billion over the second quarter, or down 94.9% from the $49.2 billion in the same period last year.
“We expect Q3 this year will break the all-time dividend record for S&P 500 companies,” Howard Silverblatt, senior index analyst at S&P Dow Jones, told the WSJ. “The S&P 500 companies have $1.8 trillion in cash sitting on the sidelines. They have plenty of money for dividends, to fully fund their pensions as well as to do M&A and buybacks.”
However, potential investors should know that not all dividend investment strategies are the same. When yields are very high, it may indicate that stock prices are sharply down, and the decline is occurring for a good reason.
“Simply chasing yield isn’t a good strategy,” Dave Nadig, director of research at ETF Trends, told the WSJ. “It’s doesn’t tell you much about the securities you are buying.”
Alternatively, ETF investors can look to products like the SmartETFs Dividend Builder (NYSE Arca: DIVS) and the SmartETFs Asia Pacific Dividend Builder (NYSE Arca: ADIV) – a pair of actively managed dividend growth strategies.
The SmartETFs Dividend Builder ETF is an actively managed dividend growth strategy that seeks dividend-paying companies that have provided an inflation-adjusted cash flow return on investment of at least 10% in each of the last 10 years. The ETF invests in approximately 35 dividend-paying companies globally.
The SmartETFs Asia Pacific Dividend Builder ETF is an actively managed dividend strategy focused on investing in dividend-producing stocks of mature companies in the Asia-Pacific region. The SmartETFs Asia Pacific Dividend Builder targets consistently high return on capital instead of focusing solely on the highest yielding dividend payers.
For more news, information, and strategy, visit the Dividend Channel.