As inflation concerns mount, investors are can pick up quality dividend growth-related exchange traded funds.
Dividend ETFs have enjoyed significant inflows since inflation concerns gained traction in 2021, with many strategies experiencing returns of more than 20% last year, CNBC reports.
With more attention on dividend-paying stocks, Simeon Hyman, global investment strategist at ProShares, argued that it is important for investors to understand the differences between the dividend ETF strategies, specifically between high-yielding payers versus quality dividend growers.
“The key distinction here … is the distinction between the high yielders and the dividend growers,” Hyman told CNBC.
“That tells you that you’ve got staying power in a name and you’ve got that important ability to grow those dividends through a cycle,” Hyman said, pointing out that those qualities are “extra important in an inflationary environment.”
“Consistency perhaps is more important than an unusually large hike that you haven’t seen before from some of the more cyclical names,” Hyman added.
CFRA’s head of ETF and mutual fund research, Todd Rosenbluth, also mirrored the sentiment, highlighting the fact that recent history has favored dividend growth over yield.
“You really need to understand whether you’re looking for growth or you’re looking at yield before you go a step further,” Rosenbluth told CNBC.
Investors can also target U.S. dividend growers through a number of ETF options. For instance, the iShares Core Dividend Growth ETF (NYSEArca: DGRO) specifically targets companies that pay a qualified dividend. These firms must have at least five years of uninterrupted annual dividend growth and an earnings payout ratio of less than 75%.
The ProShares S&P 500 Aristocrats ETF (NYSEArca: NOBL) only targets S&P 500 companies that have increased their dividends for at least 25 consecutive years.
The Vanguard Dividend Appreciation ETF (NYSEArca: VIG), the largest dividend-related ETF on the market, tracks U.S. stocks that have increased dividends on a regular basis for at least 10 consecutive years.
The Schwab US Dividend Equity ETF (NYSEArca: SCHD) includes 100 stocks based on strong fundamentals, such as cash flow to debt, return on equity, dividend yield, and consistent dividend payouts for at least 10 consecutive years.
The Invesco Dividend Achievers ETF (NYSEArca: PFM) also selects companies that have increased annual dividends for 10 or more consecutive fiscal years.
The SPDR S&P Dividend ETF (NYSEArca: SDY) 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 mid-sized companies.
The WisdomTree U.S. Quality Dividend Growth Fund (NasdaqGM: DGRW) includes companies with high long-term earnings growth forecasts for the next three to five years and weights components based on the value of dividends they are expected to pay over the next year.
For more news, information, and strategy, visit the Dividend Channel.