Four Ways To Grow Dividends With ETFs

new etfsThough some concerns have dampened the appeal of dividend stocks and ETFs over the past couple of months, investors are still praising the space thanks to the Fed’s decision to hold off on the taper.

Further, with the appointment of Janet Yellen as the likely next Fed Chairperson, many are speculating that easy monetary policies might be kept intact. As such, many are starting to believe that lower rates could prevail longer than expected, compelling investors to return to the dividend space.

Faster Dividend Growth

Over the longer term (say over the past 80 years), dividends have accounted for more than 40% of total returns. The number of companies paying dividend in the S&P 500 has risen to 83%, the highest level seen in 15 years. The payout ratio stands at 31.8%, the highest since mid 2010.

As per S&P, dividend net increases (increases less decreases) grew 8.2% during Q3 as 475 companies reported dividend hikes. The trend is expected to continue in the coming months as most large companies have huge cash piles on their balance sheet and are in a position to increase payouts to shareholders.

Currently, investors are optimistic on high growth sectors like technology and finance on improving global economies and consistent increase in dividends. Over the past one year, technology has been the best dividend paying sector in the S&P 500 and would continue to lead the way higher (read: No Taper? No Problem for These Dividend ETFs).

How to Play

In such a backdrop, investors are again cycling their exposure to the dividend space as a way to achieve equity appreciation with a lower level of risk. The ETFs with a dividend-growth focus are expected to perform better over the long term compared to funds that focus on high dividend yields.

Below, we have highlighted four dividend ETFs that offers excellent dividend growth potential, any of which could be a solid pick for investor in the long term:


This fund provides exposure to the 85 U.S. stocks that have been consistently increasing their dividends every year for at least 25 years. This is done by tracking the S&P High Yield Dividend Aristocrats Index.

SDY is easily one of the most popular and liquid ETF in the dividend space with AUM of over $12.4 billion and average daily volume of less than one million shares. The product is widely diversified across sectors and securities.

Each security accounts for less than 2.62% of total assets, with AT&T (T), HCP Inc. (HCP) and Consolidated Edison as the top three firms. The highest sector allocations go to consumer staples (17.81%), financials (16.96%) and industrials (14.10%).

The fund charges 35 bps in fees per year and yields 2.35% in 30-day SEC terms. The ETF has added nearly 22.7% so far this year.

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