When biotechnology, Internet and other momentum stocks were in favor during the first two months of this year, dividend payers lagged. Even with U.S. stocks recently hitting all-time highs, dividend payers are back to outperforming the S&P 500.
“We noted in an early March post that dividend payers in the S&P 500 Index were under performing the non payers by over 600 basis points during the first two months of 2014. Near that same time the market was beginning a transition out of momentum and growth stocks into value oriented equities. As fate would have it, many dividend payers screen as value type stocks,” said Horan Capital Advisors.
“As a result, since the end of February, the dividend payers have significantly outperformed their non dividend paying counterparts in the S&P 500 Index. As the below table shows, the dividend payers are now outperforming the non payers by nearly 400 basis points. This is a nearly 1,000 basis point swing in just three months.”
The dividend advantage can be among select exchange traded funds. For example, since March 3rd, the first trading day of that month, the S&P 500 is higher by 6.1%. Over that same period, the Vanguard High Dividend Yield ETF (VYM) and the iShares Select Dividend ETF (DVY) , two of the largest dividend funds, are up 8.2% and 7.3%, respectively. [Diversity With Dividend ETFs]
It is not just ETFs focusing on high-yield stocks that have been outpacing the broader market. ETFs with varying approaches to income and investing have also been soaring. For example, the First Trust NASDAQ Technology Dividend Index Fund (TDIV) is up 9.7% since March 3rd.
The average payout increase from Apple (AAPL), IBM (IBM), Cisco (CSCO) and Qualcomm (QCOM) this year is almost 14%. that does not include an increase from Microsoft (MSFT), which usually delivers in the second half of the year. Microsoft’s last two dividend increases were 21.7% and 15%, respectively. [A Tech ETF for Conservative Investors]
Other ETFs that eschew large exposures to high-yield sectors that have been topping the S&P 500 in recent months include the WisdomTree Total Dividend Fund (DTD) . The $437.5 million DTD has a 6.6% weight to the utilities sector, but the ETF’s utilities exposure did not prevent it from gaining 28.1% when Treasury yields spiked last year.
An interesting factoid about DTD is that the ETF’s top-10 holdings, which combine for about 23% of the ETF’s weight, include nine of the 10 largest U.S. dividend payers. DTD is up almost 8% since the start of March. [An ETF for the Largest Dividend Payers]
Vanguard High Dividend Yield ETF
Tom Lydon’s clients own shares of Apple, Cisco, Microsoft and DVY.