Broadly speaking, 2021 is proving far more kind to equity income investors than it is to those who overweight bonds.

A simple but accurate view of the matter is that interest rates are low across the fixed income landscape, while both domestic and foreign dividends are rising as some countries, including the U.S., are witnessing a return to payouts at highs seen prior to the ongoing coronavirus pandemic.

“Dividend stocks, on the other hand, are an appealing bet for income investors who can stomach their risks. Their payouts are more stable than their share prices, the payouts tend to increase over time, and investors who have hung on through downturns have done well,” says Morningstar analyst Alec Lucas in a recent note.

Not all stocks are dividends, and not all companies that have payouts are legitimate dividend growers, underscoring the point that if an investor is looking for consistent, durable dividend growth, factors beyond yield must be considered. That’s all the more relevant today when inflation is running hot because, on a historical basis, dividend growth is one of the most effective ways of damping rising consumer prices.

Knowing that dividends account for a significant percentage of a portfolio’s long-term returns, particularly when investors put the power of compounding on their sides and reinvest those payouts, it’s crucial that investors assess a company’s ability to sustain and grow payouts.

That means taking into account factors such as cash on the balance sheet, debt obligations (preferably lack thereof), and other quality traits. Fortunately, the SmartETFs Dividend Builder ETF (DIVS) eases the burden for investors because it considers those factors and does the stock picking legwork itself.

DIVS’ managers focus on cash flow, balance sheet strength, and value factors. Translation: DIVS being actively managed is a benefit for investors because the fund can avoid companies with flimsy balance sheets, which are often dividend offenders. That’s a reminder that there’s more to dividend investing than just looking at yield.

“Dividend investors should instead focus on total return–income and capital gains–over multiple years,” adds Morningstar’s Lucas. “Investors who resist the temptation to chase yield and instead consider funds’ income generation and total return potential, as well as fees and taxes, increase their odds for success.”

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.