Don't Contend with Low Dividends: Invesco's PEY ETF

Dividend stocks are coming back into style, with data indicating growth is returning at a time when bonds are disappointing many fixed income investors.

That could be a favorable set-up for the PowerShares High Yield Equity Dividend Achievers Portfolio (NYSEArca: PEY), which offers high dividends and payout growth potential.

PEY tracks the NASDAQ US Dividend Achievers 50 Index, which “is comprised of 50 stocks selected principally on the basis of dividend yield and consistent growth in dividends,” according to Invesco.

See also: Top 231 Dividend ETFs List

The ETF is supported by by steadily rising payouts.

“Net indicated dividend rate change increased $18.0 billion, compared to $9.5 billion in Q4 2020, -$2.3 billion in Q3 2020, -$42.5 billion in Q2 2020, and -$5.5 billion in Q1 2020,” according to S&P Dow Jones Indices.

Play PEY for Elevated Income

Dividends are in demand as fixed income investors face a lower-for-longer interest rate environment. The Federal Reserve is expected to maintain its near-zero interest rate policy to help push inflation up, bolster the economy, and lower the unemployment rate. The Fed has already stated it is willing to let inflation run higher to offset years inflation fell below its 2% target. Historically, dividend growers are strong inflation fighters.

Adding to the case for PEY is that some of last year’s dividend offenders are rejoining the party.

“Companies that suspended their dividends have started to pay again, while others who decreased their dividends or left them unchanged in 2020 have resumed increasing payments,” said Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices. “The dollar amount of dividend increases in U.S. common stocks in Q1 2021 was the largest since Q1 of 2012 as reductions significantly declined in the quarter.”

PEY could also be a play on increasing coronavirus vaccinations and dwindling case counts. Those factors could support ongoing dividend growth this year.

“Given the accelerating vaccine schedule and re-openings, projections call for record profits in the second half of this year, which, if the virus does not re-emerge, could fuel the way for more companies to feel secure about starting and increasing dividends.  For the S&P 500, 2021 is well on its way to a record payout, with a mid-single digit gain for the year in actual cash in shareholders pockets,” adds Silverblatt.

PEY 3 Year Total Return

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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.

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