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US Dividends Jump to Record High Amid Pandemic: ETFs to Tap
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U.S. dividends showed strong resiliency in 2020 amid the worst crisis since World War II. Dividends have been a consistent source of income for investors seeking regular returns during both bull and bear markets.
The dividend-paying securities offer safety — in the form of payouts — and stability — in the form of mature companies — that are less volatile to large swings in stock prices. Companies that pay dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.
2020 Dividends at Record High
Dividends paid by U.S. corporations climbed 2.6% year over year to a record high of $503.1 billion last year. According to the latest edition of the Janus Henderson Global Dividend Index, just one in 14 U.S. companies cancelled their dividend between April and December. This is because the companies in North America successfully conserve their cash and protect their dividends by suspending or reducing share buybacks. Notably, about half of the world’s dividends come from North America.
Investors should also note that a company that consistently increases its dividends has stronger fundamentals, suggesting rising cash flows, good liquidity, and strong balance sheet (read: A Guide to Dividend Aristocrat ETFs).
How to Play
Given this, investors could tap growing dividends in the form of ETFs. Below, we have highlighted five dividend ETFs that offer excellent dividend growth potential, any of which could be a solid pick for investors in the long term:
This is the largest and the most popular ETF in the dividend space with AUM of $53.7 billion. The fund follows the NASDAQ US Dividend Achievers Select Index, which is composed of high-quality stocks that have a record of raising dividends every year. It holds 212 securities in the basket with none accounting for more than 4.7% share. The fund charges 6 basis points (bps) in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Tap on Dividend Aristocrats ETFs for Impressive Returns in 2021).
With AUM of $17.2 billion, this fund provides well-diversified exposure to 113 U.S. stocks that have consistently increased their dividend for at least 20 consecutive years. This can be done by tracking the S&P High Yield Dividend Aristocrats Index. Each firm accounts for less than 3.4% of the assets. The fund charges 35 bps in fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
This fund provides exposure to the companies with a consistent five-year history of dividend payments. It follows the Dow Jones U.S. Select Dividend Index and holds 100 securities in its basket with each accounting for less than 2.9% of assets. The ETF has AUM of $15.7 billion and charges 39 bps in fees per year from investors. It has a Zacks ETF Rank #3 with a Medium risk outlook.
With AUM of $18.1 billion, this product offers exposure to 102 high-dividend yielding U.S. companies that have a record of consistent dividend payments supported by fundamental strength based on financial ratios and ample liquidity. This can be easily done by tracking the Dow Jones U.S. Dividend 100 Index. The fund is well spread across components, with none holding more than 4.7% of assets. It charges 6 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook.
This fund provides exposure to companies having a history of sustained dividend growth by tracking the Morningstar US Dividend Growth Index. It holds 392 stocks in its basket with each accounting for less than 3.4% share. The fund has accumulated $15.9 billion in its asset base and charges 8 bps in fees per year. It has a Zacks ETF Rank #2 with a Medium risk outlook (read: 5 Best ETF Investing Ideas for 2021).
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US Dividends Jump to Record High Amid Pandemic: ETFs to Tap
U.S. dividends showed strong resiliency in 2020 amid the worst crisis since World War II. Dividends have been a consistent source of income for investors seeking regular returns during both bull and bear markets.
The dividend-paying securities offer safety — in the form of payouts — and stability — in the form of mature companies — that are less volatile to large swings in stock prices. Companies that pay dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.
2020 Dividends at Record High
Dividends paid by U.S. corporations climbed 2.6% year over year to a record high of $503.1 billion last year. According to the latest edition of the Janus Henderson Global Dividend Index, just one in 14 U.S. companies cancelled their dividend between April and December. This is because the companies in North America successfully conserve their cash and protect their dividends by suspending or reducing share buybacks. Notably, about half of the world’s dividends come from North America.
Investors should also note that a company that consistently increases its dividends has stronger fundamentals, suggesting rising cash flows, good liquidity, and strong balance sheet (read: A Guide to Dividend Aristocrat ETFs).
How to Play
Given this, investors could tap growing dividends in the form of ETFs. Below, we have highlighted five dividend ETFs that offer excellent dividend growth potential, any of which could be a solid pick for investors in the long term:
Vanguard Dividend Appreciation ETF (VIG - Free Report)
This is the largest and the most popular ETF in the dividend space with AUM of $53.7 billion. The fund follows the NASDAQ US Dividend Achievers Select Index, which is composed of high-quality stocks that have a record of raising dividends every year. It holds 212 securities in the basket with none accounting for more than 4.7% share. The fund charges 6 basis points (bps) in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Tap on Dividend Aristocrats ETFs for Impressive Returns in 2021).
SPDR S&P Dividend ETF (SDY - Free Report)
With AUM of $17.2 billion, this fund provides well-diversified exposure to 113 U.S. stocks that have consistently increased their dividend for at least 20 consecutive years. This can be done by tracking the S&P High Yield Dividend Aristocrats Index. Each firm accounts for less than 3.4% of the assets. The fund charges 35 bps in fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
iShares Select Dividend ETF (DVY - Free Report)
This fund provides exposure to the companies with a consistent five-year history of dividend payments. It follows the Dow Jones U.S. Select Dividend Index and holds 100 securities in its basket with each accounting for less than 2.9% of assets. The ETF has AUM of $15.7 billion and charges 39 bps in fees per year from investors. It has a Zacks ETF Rank #3 with a Medium risk outlook.
Schwab U.S. Dividend Equity ETF (SCHD - Free Report)
With AUM of $18.1 billion, this product offers exposure to 102 high-dividend yielding U.S. companies that have a record of consistent dividend payments supported by fundamental strength based on financial ratios and ample liquidity. This can be easily done by tracking the Dow Jones U.S. Dividend 100 Index. The fund is well spread across components, with none holding more than 4.7% of assets. It charges 6 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook.
iShares Core Dividend Growth ETF (DGRO - Free Report)
This fund provides exposure to companies having a history of sustained dividend growth by tracking the Morningstar US Dividend Growth Index. It holds 392 stocks in its basket with each accounting for less than 3.4% share. The fund has accumulated $15.9 billion in its asset base and charges 8 bps in fees per year. It has a Zacks ETF Rank #2 with a Medium risk outlook (read: 5 Best ETF Investing Ideas for 2021).
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Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>