For equity income investors, 2022 is proving to be a memorable in that dividends the world over are rising and dividend-oriented exchange traded funds, both of the high yield and payout growth varieties, are outpacing the broader market.
Add to that, much of that outperformance is being accrued with reduced volatility relative to broader benchmarks. As such, it’s not surprising that many investors are flocking to dividend ETFs. One they might want to consider is the Franklin U.S. Core Dividend Tilt Index ETF (UDIV).
UDIV, which recently turned six years old, follows the Morningstar US Dividend Enhanced Select Index. That benchmark is designed to present investors with a higher dividend yield than broader market indexes, but that doesn’t mean it’s not levered to the trend of impressive payout growth. That’s an important trait because dividend growth, over the long term, is a valuable inflation-fighting tool.
“With inflation being a major issue in the current economy, consumers are increasingly looking for ways to combat their loss of purchasing power,” according to S&P Dow Jones Indices. “One way to achieve this is to have sources of income that keep pace with, or even exceed, the inflation rate. Over the past four decades, dividends have played an increasing role as a source of income, growing from just 2.88% of all income in December 1981 to 6.25% of all income in March 2022.”
Interestingly, not all of UDIV’s 324 holdings are dividend-paying equities. Hence, the “tilt” in the fund’s name. However, in many cases, those that are have enviable track records of payout growth or have recently cemented themselves as credible residents of the dividend growth camp.
In the former category are the likes of Johnson & Johnson (NYSE:JNJ), Coca-Cola (NYSE:KO), and Pepsico (NASDAQ:PEP). In the latter category, there’s Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) — UDIV’s two largest holdings. On that note, technology is UDIV’s largest sector allocation at 30.54%. Add it all up, and it’s clear that UDIV has some compelling traits for investors seeking inflation protection and reliable income.
“During inflationary periods, history has shown the importance of focusing on companies that have consistently increased dividends. A company’s ability to consistently increase dividends may signal a quality company that is able to continually generate increasing cash flows as well as high returns on capital,” concluded S&P Dow Jones.
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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.