In a challenging environment for dividend stocks, payout growth remains a viable point of emphasis for income investors. The VictoryShares Dividend Accelerator ETF (VSDA) takes a useful approach to steady payout growth.
The VictoryShares Dividend Accelerator ETF debuted in April 2017 and follows the Nasdaq Victory Dividend Accelerator Index (NQVDIV), which Victory Capital developed in partnership with Nasdaq. What makes VSDA unique is that it focuses on more than a company’s previous dividend track record.
Dividend growth as a means of trumping inflation could and arguably should serve to highlight the advantages of the ETFs that focus on dividend growth stocks. That group is comprised of well-established ETFs that emphasize dividend increase streaks as well as a new breed of funds that look for sectors chock full of stocks that have the potential to be future sources of dividend growth.
VSDA features companies with “not only a history of increasing dividends, but which also possess the highest probability of future dividend growth. It seeks to provide exposure to dividend growth, rather than yielding, offering a potential diversification benefit to high dividend yielding alternatives,” according to VictoryShares.
Dividend Growth Performs Over Time
VSDA’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.
Investors should consider quality dividend growth stocks that typically exhibit stable earnings, solid fundamentals, strong histories of profit and growth, commitment to shareholders, and management team convection in their businesses.
Companies with a record of raising dividends are more attractive than usual since they issue their dividends cautiously. These dividend payers typically include higher quality companies that are more cautious when raising dividends since they would do so without stretching their balance sheets.
VSDA holds 75 stocks with an average market capitalization of $96 billion. The ETF allocates 21% of its weight to industrials and almost a third of its weight to the two consumer sectors.
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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.