• February 9, 2023

Dividends Are Accelerating: There’s an ETF for That

F.After a difficult first half of 2020, a dividend revival began – one that still has plenty of momentum. That renaissance didn’t come too early, because while ten-year government bond yields have more than doubled in the past six months, government debt and other investment-grade yields are still low.

The combination of low interest rates and resurgent value / cyclical stocks – Groups in which there are many dividend payers – are effective for payout shares. Investors looking to join the party have myriad options in the world of exchange-traded funds, but even with enticing names with high dividends, growth is the way to go.

The VictoryShares Dividend Accelerator ETF (VSDA) is leveraged on this issue. VSDA, which turns four later this month, is tracking the Nasdaq Victory Dividend Accelerator Index.

“The Nasdaq Victory Dividend Accelerator Index is designed to create a diversified portfolio of stocks that are expected to generate dividend growth. The index selects 75 stocks from Nasdaq’s US Large Mid Cap Index based on factors such as dividend growth, liquidity and other financial metrics, ”said Nasdaq.

VSDA: Right idea now

As mentioned above, the $ 343.26 million VSDA is a payout growth strategy that is relevant as dividends start to rise again.

“On a stock basis, dividend payments from the S&P 500 for the first quarter of 2021 for the S&P 500 increased 0.2% to $ 14.68 from $ 14.64 in the fourth quarter of 2020 and up 4.2% % from a record $ 15.32 in the first quarter of 2020. ” according to S & P Dow Jones Indices. In total, index components paid dividends of $ 123.9 billion in the quarter, up from $ 121.6 billion in the fourth quarter of 2020. “

Dividend investing is inherently a long-term concept. To this end, Growth is paramount and it is vital for both younger investors looking to harness the power of compounding and older investors approaching or retired to avoid negative dividend measures that harm income streams.

With that in mind, many of last year’s dividend abusers are resuming their payouts – another sign of growth that supports the case for VSDA.

“Companies that suspended their dividends have started paying again, while others that have lowered their dividends or left them unchanged in 2020 have returned to increasing payments,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices in U.S. common stocks, Q1 2021 was the largest since Q1 2012 as reductions declined significantly in the quarter. “

Right sector mix

Regardless of whether negative dividend measures are to be avoided or reliable growth is to be achieved, sector allocations are important in dividend ETFs. VSDA has got investors covered on that front.

The VictoryShares fund allocates only 5.40% of its total weight to utility, energy and property names – the latter of two was a monstrous payoff offender in 2020.

On the flip side, VSDA’s second largest sector allocation is 16.32% for financial services – a sector that will see significant growth in payouts in the second half of this year as the Federal Reserve removes dividend handcuffs from banks.

The ETF’s technology weight of 11% also speaks for it.

“In the first quarter of 2021, it was 14 times more likely that companies would positively increase or initiate a dividend than negatively cut or suspend dividend payments. This was almost three times the ratio compared to the previous year. ” notes CFRA ResearchTodd Rosenbluth, Head of ETF & Investment Fund Research. “Dividend increases have been seen in the information technology sector and in companies such as Analog devices (SURNAME) and Applied materials (AMAT) are among the companies that will continue to boost cash payments, according to CFRA. “

The views and opinions expressed are those of the author and do not necessarily reflect those of Nasdaq, Inc.

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