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Dividend ETFs: Yields Falling as Market Rallies


Corporate America’s dividend payouts are on the rise, but dividend related exchange traded funds are actually seeing yields diminish as the equities market rallies to new heights.

According to S&P Dow Jones Indices, the amount of dividend payments increased $14.5 billion during the first quarter of 2013, with a reported 944 dividend increases, a 39.4% increase year-over-year. [Investors Play Defense with Dividend ETFs]

“Dividends continued to increase in the first quarter with actual cash payments increasing 12% and the forward indicated dividend rate reaching a new all-time high,” Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices, said in the press release.

Analysts also expect dividend payouts to increase further.

“Payout rates, which historically average 52%, continue to remain near their lows at 36%,” Silverblatt added. “At this point, 2013 will easily surpass the 2012 record dividend payment, which speaks to the growth of dividends since 2012 payments included accelerated payments from 2013.”

However, the weighted dividend yield was 2.61% at the end of the first quarter, compared to 2.8% at the end of 2012.

“The lower yield is the result of the strong 10% equity increase in the first quarter,” Silverblatt explained.

Dividend yield is the ratio of a company’s total dividends relative to its share price. If the share price rises, then the ratio would diminish.

While investors can still find high yield options, you could be taking on greater risk, writes Charles Rotblut for American Association of Individual Investors.

“High yields are a sign that other investors perceive problems and want a higher yield to be compensated for those risks,” Rotblut said. “In the current market environment, stocks with yields above 4.5% should be analyzed closely. There might be some bargains, but since higher yields imply lower valuations, it is important to remember that some stocks are cheap for a reason.”

Additionally, Rotblut reminds investors to look at total return since both price appreciation and income contribute to overall wealth. [Surveying the Dividend ETF Landscape]

Some dividend ETFs include:

  • SPDR S&P Dividend ETF (SDY) : 2.82% 12-month yield
  • Vanguard Dividend Appreciation ETF (VIG) : 2.17% 12-month yield
  • WisdomTree Dividend ex-Financials Fund (DTN) : 3.88% 12-month yield
  • iShares Dow Jones Select Dividend (DVY) : 3.43% 12-month yield
  • iShares High Dividend Equity Fund (HDV) : 3.22% 12-month yield

For more information on dividends, visit our dividend ETFs category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.