Whether it’s dividend chasing or simply a case of investors looking for income beyond bonds and for a less volatile equity frontier, market participants are embracing dividend funds, including exchange traded funds, in a big way in 2022.
As of late June, dividend funds have hauled in $43 billion in new capital from investors on a year-to-date basis. That’s a big number that could certainly grow larger in the back half of 2022, particularly if inflation remains high and interest rates continue rising.
It’s also a reminder that investors need to be judicious when allocating to dividend ETFs. That can be accomplished with the SmartETFs Dividend Builder ETF (DIVS). A primary reason that DIVS fits the bill as a selective choice among dividend ETFs is that the fund is actively managed whereas the bulk of its competitors are index-based strategies.
“Historically, dividends have significantly contributed to an asset’s total return, sometimes providing a boost during economic downturns,” reported Kate Dore for CNBC. “From 1973 to 2021, companies paying dividends earned a 9.6% total annual return, on average, beating 8.2% from the S&P 500 Index, and eclipsing the 4.79% yield from non-dividend payers, according to a 2022 Hartford Funds study.”
To the point regarding dividends’ long-term contribution to overall portfolio performance, DIVS is a relevant consideration because it leans into payout growth, not yield. While high-dividend strategies, many of which are rooted in yield weighting, are performing well this year, stocks with high yields can ultimately become dividend offenders.
As an actively managed ETF, DIVS has the potential to keep investors clear of companies that could lower or suspend payouts.
“While a higher dividend payout may be appealing during a flat or down market, it’s important to assess what you’re buying before adding new assets to your portfolio,” according to CNBC. “Some companies, known as the ‘dividend aristocrats,’ have a history of increasing dividends annually, even during previous recessions. And many companies are slow to cut dividends, providing some investors with reliable cash flow.”
While DIVS isn’t explicitly dedicated to dividend aristocrats, nor does it focus on dividend increase streaks, it leverages quality attributes to create a basket of companies with potentially dependable dividend growth possibilities. Additionally, due to its roots as a dividend fund, DIVS is applicable for tax-advantaged accounts, indicating that it’s a viable consideration for advisors to discuss with clients.
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.