Looking for rising dividends? Owning ETFs that chase S&P 500 companies that boost dividends annually isn't the only way to do it.
There might be comfort in owning ETFs that hold stocks that have boosted dividends annually for decades, like the SPDR S&P Dividend ETF. But here's a surprising twist. Simply owning ETFs that own the entire S&P 500, like the SPDR S&P 500 ETF Trust, actually paid out a larger raise in dividends in the past 10 years.
The SPDR S&P 500 ETF Trust's dividend per share over the past 12 months is up nearly 90% since 2012, says data from State Street Global Advisors. That edges out the 76% dividend hike in that time by SPDR S&P Dividend ETF. The SPDR S&P Dividend ETF only owns companies that boosted dividends for 20-straight years.
It's another reminder of the growing influence of new dividend payers, not just existing ones that simply inch up payments annually.
"Dividend payments in the U.S. rose 10.4% on an underlying basis to a record of $141.6 billion during the first quarter of the year," according to the latest Janus Henderson Global Dividend Index. "Nearly every U.S. company in the index, 99%, increased their payments or held them steady, as dividends continued to be a reliable source of income growth for shareholders."
Where S&P 500 Dividends Are Coming From
If you're only owning ETFs with companies that boosted dividends for 20 years, you're missing much of the action.
Technology stocks aren't known as big dividend payers. Paying dividends is still fairly new for many of them. And very few have paid them for 20 years straight. And yet, tech stocks are now the largest contributors to the S&P 500's dividend at 17.3%, says Howard Silverblatt of S&P Dow Jones Indices. Many dividend growth ETFs underexpose you to this increasingly important sector for dividends.
Additionally, simply owning the S&P 500 exposes you to the upward bias in dividends. So far this year, S&P 500 companies boosted dividend payments by an average of 13.4%. And six doubled them. In fact, the S&P 500's dividend payout has risen every year since at least 2012. It jumped more than 20% in 2012. If you just own the stocks that have inched up dividends for many years, you miss out on some of this explosive growth.
Picking Between Dividend ETFs
Investors are simply shooting for high dividends.
Among the largest 10 broad dividend ETFs says ETF.com, iShares Select Dividend is the top performer. It's up 5.6% in the year so far. That's impressive in a year that the S&P 500 is down 13.8%. And best of all, it yields 2.88%, which is double the 1.37% yield by the S&P 500. But it doesn't limit itself as much as some of the other rising dividend ETFs.
The iShares Select Dividend ETF owns roughly 100 stocks, including smaller firms. But it only insists that companies it owns boosted their dividends over the past five years. That allow it to hold 4.4% of its portfolio in health tech and 4.4% in electronic technology. ETFs that limit themselves to companies hiking dividends for decades don't own as many electronic technology companies.
"Some like SPDR S&P Dividend and ProShares S&P 500 Dividend Aristocrats look back two decades for a record dividend growth, which provides a track record during various market regimes but also limits the exposure to information technology companies," said Todd Rosenbluth, head of research at VettaFi.
How The Largest S&P 500 Dividend ETFs Are Faring
| ETF | Symbol | Assets ($ billions) | Expense ratio | YTD % ch. | Yield |
|---|---|---|---|---|---|
| Vanguard Dividend Appreciation | $63.2 | 0.06% | -11.5% | 1.84% | |
| Vanguard High Dividend Yield | 46 | 0.06 | -1.4 | 2.77 | |
| iShares Select Dividend | 23.2 | 0.39 | 5.6 | 2.88 | |
| SPDR S&P Dividend | 21.5 | 0.35 | -2.4 | 2.62 | |
| First Trust Value Line Dividend Index | 12.4 | 0.67 | -5.1 | 1.85 | |
| ProShares S&P 500 Dividend Aristocrats | 10.1 | 0.35 | -7.5 | 1.98 | |
| SPDR Portfolio S&P 500 High Dividend | 8.5 | 0.07 | 5.4 | 3.48 | |
| Alerian MLP | 6.7 | 0.87 | 25.6 | 7.14 | |
| iShares International Select Dividend | 5 | 0.49 | 0.2 | 5.38 | |
| Vanguard International High Dividend Yield | 4.2 | 0.22 | -2.4 | 4.30 | |
| SPDR S&P 500 ETF Trust* | 4.2 | 0.22 | -13.8 | 1.37 |
