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A Dividend ETF’s Quiet Ascent


Dividend stocks are playing a pivotal role in driving U.S. equities to an ongoing set of record highs, a fact confirmed by nine dividend exchange traded funds rising to fresh all-time highs last Friday.

One of those nine was the PowerShares Dividend Achievers Portfolio (PFM) . The nearly $362 million PFM will soon celebrate its ninth anniversary, so it is neither small nor a new kid on the dividend ETF block. However, the ETF has quietly gained a solid 8% this year on its way to the aforementioned record high, at which it closed last Friday. [Spotlight on Dividend Growth]

Like some of its rivals, PFM emphasizes dividend consistency and growth. That objective is accomplished by following the NASDAQ US Broad Dividend Achievers Index, which also mandates a minimum dividend increase streak of 10 years for inclusion.

Dividends are a sign of well-run companies and “shares of dividend-paying companies possess built-in value that makes them generally more resilient in down markets, with solid appreciation potential during earnings-driven market upturns with less price volatility,” according to NASDAQ OMX Global Indexes.

With an almost 23% weight to the consumer staples sector, the ETF’s largest sector allocation, PFM offers income investors the consistency they crave with exposure to stocks with some of the longest-running dividend increase streaks in the U.S., including Procter & Gamble (PG), Coca-Cola (KO) and PepsiCo (PEP). [A Dividend ETF That Keeps Rising]

PFM also offers a decent 11.5% weight to the technology sector, one of the largest contributors to S&P 500 dividend growth in recent years. PFM also merits consideration as a dividend ETF to own if and when interest rates rise because the industrial, technology an consumer discretionary sectors combine for a third of the ETF’s weight. Historically, those are the three best-performing sectors when rates rise.

There are other important, interest rate-related considerations with PFM. Although its trailing 12-month yield of 1.76% is well below the yield on 10-year Treasuries, the ETF’s yield implies safety, a lack of sensitivity of to rising rates and the ability of the fund’s components to continue growing dividends without threatening to alarmingly raise their payout ratios.

Additionally, PFM’s weight to the rate-sensitive telecom and utilities sectors is just 8.3% combined.

Dividend growth, such as that offered by PFM, not only fosters added income and returns, but can also act as an inflation-fighting tool. It also reduces volatility. Over the past 40 years, companies that booste payouts have proven to be less volatile than their counterparts that cut, suspended or did not initiate or raise dividends. [Fight Inflation With Dividend ETFs]

PowerShares Dividend Achievers Portfolio