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A Strong Dividend Environment Should Boost This ETF


In the third quarter, dividend increases for U.S. common shares totaled $11.9 billion, up from $8.8 billion a year earlier. Nearly 480 dividend hikes were registered last quarter compared with almost 440 in the year earlier period, according to S&P Dow Jones Indices. And with the good times expected to continue for dividends, dividend ETFs should benefit.

Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices, said he expects a “busy” fourth quarter on the dividend increase front, which could support payout ETFs into year-end.

The SPDR S&P Dividend ETF (SDY), one of the largest U.S. dividend ETFs with $12.3 billion in assets under management, could be awash in dividend increases over the next few months. SDY tracks the S&P High Yield Dividend Aristocrats Index, which requires 25 years of consecutive dividend increases for membership. [Some Dividend ETFs Beating The S&P 500]

Based on historical dividend increases and current-year payment trends, suggests 13S&P 500 Dividend Aristocrats have yet to increase their dividend in 2013 and may choose to do so before the end of the year, according to Silverblatt.

Past dividend increases are not guarantees of futures hikes, but SDY holding VF Corp. (VFC) consistently raises its dividend in October while Aflac (AFL) and Cintas (CTAS) have been October dividend raisers over the past several years, according to S&P Capital IQ. [Surveying The Dividend ETF Landscape]

S&P Capital IQ also points out that SDY holdings AT&T (ADP), Automatic Data Processing  (ADP), Becton, Dickinson (BDX) Brown-Forman (BF-B), Emerson Electric (EMR), Hormel Foods (HRL), McCormick (MKC) and Sysco (SYY) all have a tendency to increase their payouts in November. Steel giant Nucor (NUE) usually raises its payout around the holidays. AT&T, Nucor and Emerson Electric are all top-10 holdings in SDY.

Although SDY has a combined 28.1% weight to rate-sensitive consumer staples and utilities names, the industrial and discretionary sectors, the two best sector performers in rising rate environments, combine for 23% of SDY’s weight. S&P Capital IQ rates the ETF Overweight. SDY has annual fees of 0.35%.

SPDR S&P Dividend ETF

ETF Trends editorial team contributed to this post.

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.