Three ETFs To Watch On The Microsoft Corporation (MSFT) Dividend Hike

dividendsMicrosoft Corporation (NASDAQ:MSFT) surprised the market with the announcement of a big dividend hike. The news has sent the dividend payout ratio for the S&P 500 companies to a 15-year high.

The software giant raised its quarterly dividend by 22% to 28 cents per share, reflecting its strong commitment to deliver increased income to its shareholders. The new dividend will be paid on December 12 to shareholders of record as of November 21.
The new annual payout of $1.12 represents a dividend yield of 3.4%, which is ahead of its major rivals – International Business Machines (IBM) and Apple (AAPL). This is also above the S&P 500 average yield of 2.4%.

Further, MSFT also approved a new share buyback program of up to $40 billion, which has no expiration date.

Impact on ETFs

Taper talks have dampened the appeal for dividend stocks and ETFs over the past couple of months. However, some ETFs in this corner of the market would still remain attractive choices for long-term investors. These ETFs not only provide decent current income, but also offer better capital appreciation potential than the traditional income sources (read: High Dividend ETFs to Buy Even If the Fed Tapers).

As per the S&P, dividend net increases (increases less decreases) grew 17% during Q2 as 591 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 sheets, and are well placed to increase payouts to shareholders.

Currently, investors are more optimistic on high growth sectors like technology and finance courtesy of improving global economies and a consistent increase in dividends. Over the past one year, technology has been the best dividend paying sector in the S&P 500.

According to WisdomTree, the technology sector has accounted for more than 54% of the dividend increase over the past five years so this could just be another step on this path.

ETFs to Watch

The recent move by MSFT could add growth opportunities in the dividend ETF space. 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 (see: all the Large Cap ETFs here).

Below, we have highlighted three popular dividend ETFs that are heavily invested in this software company and would be in focus in the coming months. Investors should closely monitor the movement in these funds and catch an opportunity when it arises:

First Trust NASDAQ Technology Dividend Index (TDIV)

This fund seeks to focus on dividend payers within the technology sector by tracking the Nasdaq Technology Dividend Index. The fund has accumulated $196.3 million in its asset base and currently holds 78 securities in its basket.

The top five holdings – Cisco (CSCO), AAPL, Intel (INTC), MSFT and IBM – pay out attractive dividends which are higher than the S&P 500 index. These firms make up for nearly 38% of assets in the fund’s portfolio.

The ETF currently yields 2.16% in annual dividends and charges an expense ratio of 50 basis points. The fund added nearly 20% in the year-to-date timeframe.

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