S&P Highlights 1 ETF For Lengthy Streaks of Dividend Increases
Coming off a banner year for dividend increases in 2012, investors are still hungry for payouts in 2013. Last year, payouts jumped 18 percent and the forward indicated dividend rate reached a new all-time high, according to S&P Dow Jones Senior Index Analyst Howard Silverblatt.
Silverblatt sees 2013 as the potential for being another record-setting year on the dividend front. Not surprisingly, a good part of the rosy outlook for dividend stocks this year is tied to the expectation that venerable, blue-chip names that have lengthy streaks of dividend increases going will keep those streaks in tact.
Several marquee dividend ETFs track indexes that screen based on dividend increase streaks, including the $9.71 billion SPDR S&P Dividend ETF (NYSE: SDY). In a new research note, S&P Capital IQ rated SDY Overweight.
"In light of 10-year Treasuries yielding less than 2%, stocks that offer yields of 3% or higher and have strong fundamentals are particularly appealing. But, the challenging part is making sure that the dividends are secure and there is room for further growth," said S&P Capital IQ in the note.
SDY does ensure its constituents are not just dividend payers, but dividend growers as well. The ETF tracks the &P High Yield Dividend Aristocrats Index (SPHYDATR). To be included in that index, companies must have increased dividends for at least 20 consecutive years.
SDY features a dividend yield of 3.17 percent and the ETF is home to 84 holdings. The fund offers exposure to all 10 S&P 500 sectors, though its industry allocations will not surprise seasoned dividend investors. Consumer staples dominate SDY with an allocation of almost 21 percent. Finacials and industrials follow, each at about 16 percent.
To its credit, SDY is not excessively weight to just one or two stocks. Currently, Avon (NYSE: AVP), which S&P Capital IQ said is being removed from SDY, is the ETF's largest holding with a weight of 2.74 percent.
SDY is home to nine Dow components, including AT&T (NYSE: T) and Johnson & Johnson (NYSE: JNJ). Johnson & Johnson has increased its dividend for 50 consecutive years. Other SDY holdings include, Coca-Cola (NYSE: KO) and Procter & Gamble (NYSE: PG) are also on dividend raising streaks spanning five decades or more.
Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX), the two largest U.S. oil companies and the two names that represent, the bulk of SDY's energy sector exposure, each have current dividend increase streaks of well over 20 years.
"Favorable S&P Quality Rankings, along with a below-average standard deviation of just 12.3 (versus 15.1 for the S&P 500 Index) contribute positively to SDY's risk considerations in our ETF ranking. Other positive factors for SDY, according to S&P Capital IQ, are a tight bid/ask spread and bullish technical trends," according to the research firm.
Other popular ETFs that screen based on the length of a company's dividend increase track record, include the Vanguard Dividend Appreciation ETF (NYSE: VIG). VIG, the largest U.S. dividend ETF by assets, tracks the Mergent Dividend Achievers Select Index. That index requires a dividend increase streak of at least a decade. VIG's top holdings include Wal-Mart (NYSE: WMT), Coca-Cola, P&G and McDonald's (NYSE: MCD).
VIG was not highlighted in the S&P note, but the firm said "for investors seeking a diversified ETF of companies with a long record of dividend increases, SDY warrants further attention." VIG is the cheaper of the two with an expense ratio of 0.13 percent compared with a 0.35 percent annual expense ratio charged by SDY.
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