Over long holding periods, dividends account for significant percentages of the broader market’s returns, but there are times when market participants focus more on capital appreciation and lean into growth stocks — many of which aren’t dividend payers — to accomplish that objective.
With dividends resurgent this year and broad benchmark return expectations for 2022 increasingly muted, it could be time for investors to lean into dividends. Enter the SmartETFs Dividend Builder ETF (DIVS).
DIVS, which is actively managed, is already benefiting from a spate of global dividend increases in 2021 — a theme that many market observers expect will carry over into 2022.
“The S&P 500 companies are estimated to increase their earnings by 6.5% next year, but the index would likely stay flat from today’s level, sitting around 4,600 points by the end of 2022, said Savita Subramanian, head of U.S. equity & quantitative strategy and ESG research at Bank of America,” reports Evie Liu for Barron’s.
This says that companies have the earnings firepower to maintain and boost dividends, and if the S&P 500 proves to be a slack performer in 2022, dividends may become all the more important to investors. Translation: A total return environment could support DIVS.
“For the next decade, she expects the S&P 500 to see negative price returns, and dividends to become a more important part of investor returns. Dividends have contributed to nearly one third of market total returns over the past 100 years, but Subramanian believes the ratio could reach even higher in years to come,” according to Barron’s.
DIVS is ideally positioned for an extended period of subdued broad market returns because the fund focuses on quality companies with the ability to steadily raise payouts over time, providing investors with buffers against volatility and upside potential even in lethargic market environments.
“Dividend growth has not caught up with the massive earnings recovery since 2020, as companies remain cautious about distributing cash in a less certain environment. But that will likely change as investors demand more returns in a flat market,” adds Barron’s.
Speaking of consistent dividend growth, DIVS features exposure to financial services, healthcare, and technology stocks — three sectors will reliably rising payouts.
For more news, information, and strategy, visit the Dividend Channel.
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.