It was a rough first half of 2020 in terms of dividend cuts and suspensions, but things perked up in the third quarter, shining a light on the benefits of exchange traded funds, such as the Invesco Dividend Achievers ETF (NASDAQ: PFM).
PFM, which yields 2.09%, is higher by nearly 19% over the past six months. The $433 million PFM is more than 15 years old and follows the NASDAQ US Broad Dividend Achievers. That benchmark requires member firms to have dividend increase streaks of at least 10 years.
“As yield-paying companies recover from the coronavirus-driven slowdown that led many of them to cut their payouts earlier in the year, investors may be wondering whether the dividend trade is yet safe,” reports Lizzy Gurudus for CNBC.
Due to its emphasis on payout growth rather than high yields, PFM is a safe idea for investors looking to revisit dividend stocks over the near-term.
Powerful PFM Payout Growth
PFM’s emphasis on dividend growers is particularly relevant in today’s market environment. Dividend-growing companies are also high quality names. Steady dividend payouts have also helped produce improved risked-adjusted returns over time.
The high-quality focus may also help dividend growers outperform or do less poorly than the broader markets during weaker periods.
Dividends have added significantly to returns over time, contributing approximately 32% of the S&P 500’s total return since 1960. During the return-challenged 1970s, dividends made up nearly three-quarters of S&P 500 returns – while investors earned a cumulative total return of 77% from the S&P 500 in that decade, 60% of that 77% was from dividends.
PFM holds nearly 300 stocks and its second-largest sector weight is technology at almost 16%. That’s meaningful for investors in the current environment and going forward.
For years, technology was the not first sector investors thought of when they thought of dividends. The largest sector weight in the S&P 500 is changing that and that change has been a boon for an array of ETFs. In fact, in dollar terms, technology is now the largest dividend-paying sector in the U.S.
Moreover, many tech companies already paying dividends have the balance sheets to support and grow those 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.