Company stocks that issue high dividend yields can be masking their distressed books or may not be sustainable and are heading for dividend cuts. Consequently, these quality dividend ETFs try to limit the impact of these value traps by requiring a history of sustainable dividend growth.
“SCHD’s 3-year compound annual dividend growth rate through the end of 2016 is 11.9% per year,” according to Seeking Alpha. “2016 was its 6th year of increasing dividends if you count its start-up year (2011) as Year 1.”
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.
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Tom Lydon’s clients own shares of SCHD.