After being largely ignored during the pandemic as investors focused on growth stocks, dividends are back in a big way.
Mega-cap tech firms have been sucking all of the oxygen out of the room for the past few years, but there’s a shift underway. With markets in a place of volatility, inflation running rampant, and the Federal Reserve considering an indeterminate number of rate hikes, dividends are positioned to take center stage, with S&P Dow Jones Indices estimated to pay out over $541 billion this year, a 6% increase from 2021.
“When companies increase their dividends, … it is a sign of confidence in future cash flows,” said Simeon Hyman to the Street. Hyman manages the ProShares S&P 500 Dividend Aristocrats ETF (NOBL).
How to Invest in Dividend Stocks
There are multiple ways to approach dividends. One strategy involves zeroing in on the highest possible yields. But, oddly, high yields can signal that a company is troubled. Often, firms dole out high yields in order to mitigate performance concerns.
The other tactic investors could employ is to find companies that are slowly raising their yields over time. This dividend growth strategy can lead to fewer yields off the bat, but more in the long run. These companies also tend to be more stable.
This latter strategy can be found in the SmartETFs Dividend Builder ETF (DIVS). Dividends frequently grow at a rate that outpaces inflation. DIVS utilizes a thoughtful approach to building up dividends through focusing on firms with a history of solid fundamentals and a quality bias. Its holdings consist of companies that have high returns and low levels of debt.
DIVS holds approximately 35 equally weighted positions. It has an expense ratio of 0.65%.
For more news, information, and strategy, visit the Dividend Channel.