Domestic dividends notched another quarterly record in the first three months of 2022, underscoring the point that payout stocks are one way of dealing with today’s tumultuous market environment.
Fortunately for equity income investors who don’t want to stock pick, plenty of exchange traded funds are dedicated to the dividend cause. That group includes the SmartETFs Dividend Builder ETF (DIVS), managed by Guinness Atkinson Asset Management.
DIVS is arguably more relevant today than many competing funds in the dividend category because of its emphasis on quality and reliable payout growth. Indeed, U.S. dividends are growing.
“Globally, first quarter dividends jumped by 11% on a headline basis to a total of $302.5bn, also a record for the seasonally quieter first three months of the year. Underlying growth was even stronger at 16.1%. Janus Henderson’s analysis shows that dividends have more than doubled since 2009, when the Index launched,” according to a statement issued by Janus Henderson last month referencing its Janus Henderson Global Dividend Index.
DIVS, which sports a five-star rating from Morningstar, eschews dividend yield and a company’s payout history in favor of “companies with a long history of persistently high return on capital.” Over the long haul, that strategy can be a better dividend mousetrap because it can identify companies with strong free cash flow capabilities.
In turn, strong cash generators are the firms most likely to be able to not only sustain current dividend obligations, but consistently grow those payouts over the long haul. Additionally, companies that are prodigious generators of free cash are among those most likely to reduce debt and buy back their own shares.
Still, it’s hard to ignore the dividend growth potential offered by DIVS, particularly at a time when global payout forecasts are rosy.
“Nevertheless, the inclusion of the robust Q1 numbers increases the forecast slightly for the year. For 2022, Janus Henderson now expects global dividends to reach $1.54 trillion, a headline increase of 4.6%, equivalent to a 7.1% increase on an underlying basis,” concluded Janus Henderson.
Speaking of payout reliability, the sector weights in DIVS show that the actively managed fund prioritizes reliability. As of the end of April, 20% of DIVS’ holdings hail from the consumer staples sector — a venerable dividend destination. Likewise, another 14% are healthcare names, and that sector is known for high-quality, growing payouts.
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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.