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Three Large Cap Dividend ETFs to Play on Higher Payout

Zacks Equity Research

The Fed’s “no lift-off” announcement may have created a new climate of uncertainty in the market, especially about the U.S. economy. But some of the large-cap American companies are not beaten down by the trend. These market majors might be borne aloft by expanding economic activity in the U.S. along with improvement in the housing and labor markets (read Homebuilding on Sustained Growth: ETFs in Focus).

 

We are talking about the recent dividend hike announcements made by U.S. companies of the likes of Microsoft Corporation (MSFT), Verizon Communications Inc. (VZ), Philip Morris International, Inc. (PM), Texas Instruments Inc. (TXN) and Williams Companies, Inc. (WMB). Interestingly, three of these large-cap stocks (Verizon, Phillip Morris and Williams Companies) have a dividend yield of over 5% while the rest (Microsoft and Texas Instruments) have a more than 3% dividend yield.

 

Dividend Hikes

 

Microsoft raised its quarterly dividend by 5 cents or a robust 16.1% to 36 cents per share, from the prior level of 31 cents. This is higher than the 11% increase last year. The tech giant has increased its dividend payout in each of the past nine years, barring 2009.  

 

Verizon announced a dividend hike of 1.5 cents per share, or 2.7%, to 56.5 cents per share. Notably, this is the ninth consecutive year the company has approved a quarterly dividend increase.

 

Philip Morris announced a quarterly dividend hike of 2% to $1.02 per share. This was the eighth annual increase in quarterly dividends by Philip Morris after its spin-off from Altria Group Inc. (MO).

 

Texas Instruments announced its decision to raise the quarterly dividend by 4 cents or 12% to 38 cents per share, marking the 12th consecutive year of dividend increase. The company’s dividend raise came in spite of its soft outlook for the third quarter due to continuing weak demand for its communications equipment.

 

Williams Companies has also announced an increase in its quarterly cash payment at a time when many energy sector companies have been forced to either cut or suspend payouts to mitigate financial woes. This pipeline operator declared a third-quarter 2015 dividend of 64 cents per share, up 14% from the prior-year quarter and 8.5% sequentially. It has been consistently paying and increasing dividends over the past several years.

 

Lower Bond Yields

 

The recent dividend hike announcements definitely draw our attention to the large-cap dividend ETFs, particularly at a time when bond yields are falling across the world as investors flock toward bonds as a safe haven investment in an uncertain global macroeconomic environment (read: 3 Dividend ETFs in Focus on Surging Payouts).

 

The yield on the benchmark U.S. 10-year Treasury note, a gauge of investors’ concern toward global growth, fell from this year’s peak of 2.5% and 2.2% at the end of last year to 2.1% yesterday. Meanwhile, yields on both 10-year German bond and 10-year U.K. bond fell 10 basis points to 0.6% and 1.8%, respectively. Notably, yields on many countries, such as, France, Denmark, Sweden, Finland and Belgium dropped at the same time.

 

ETFs in Focus

 

All these make large-cap dividend ETFs a lucrative option for income-hungry investors, especially when interest rates are stuck to its record low level (read: 5 Overlooked Dividend ETFs Worth Buying Now). These ETFs have the potential to navigate through the market turbulence and earn strong regular income in this yield-starved environment, provided one is committed for the long run (see all Large Cap ETFs here).

 

Schwab US Dividend Equity ETF (SCHD)

 

This fund tracks the Dow Jones U.S. Dividend 100 Index, which measures the performance of high dividend yielding U.S. stocks that have a record of consistently paying dividends. The ETF has generated returns of more than 35% in the last three years.

 

This ETF has a combined exposure of more than 11% to Microsoft, Verizon, Texas Instrument and Williams Companies. It has already amassed roughly $2.5 billion in assets and has a dividend yield of 3.1%. The fund charges a meager 7 bps in fees and trades in solid volume of more than 498,000 shares per day. It currently has a Zacks Rank #3 or ‘Hold’ with a Medium risk outlook.

 

WisdomTree LargeCap Dividend ETF (DLN)

 

Investors seeking exposure to the U.S. large cap value space may find DLN an intriguing choice. The ETF has returned nearly 32% in the last three years. It seeks to match the price and yield of the WisdomTree LargeCap Dividend Index.  

 

This ETF has a combined exposure of nearly 9% to Microsoft, Verizon, Phillip Morris, Texas Instrument and Williams Companies. It has gathered nearly $1.7 billion in assets and has a dividend yield of 2.8%. The fund charges 28 bps in fees and trades in an average volume of 114,000 shares. It currently has a Zacks Rank #3 with a Medium risk outlook.

 

WisdomTree Total Dividend ETF (DTD)

 

This fund corresponds to the price and yield performance of the WisdomTree Dividend Index, which tracks the large-cap equities listed on the NYSE, AMEX or NASDAQ Global Market, that pay regular cash dividends. This fund has returned nearly 34% in the past three years.

 

Microsoft, Verizon, Phillip Morris and Texas Instruments comprise nearly 7% of the fund. The ETF has accumulated nearly $476 million in assets and has a dividend yield of 2.8%. It charges 28 bps in fees and exchanges about 34,000 shares in hand per day. It currently has a Zacks Rank #3 with a Medium risk outlook.


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MICROSOFT CORP (MSFT): Free Stock Analysis Report
 
VERIZON COMM (VZ): Free Stock Analysis Report
 
PHILIP MORRIS (PM): Free Stock Analysis Report
 
TEXAS INSTRS (TXN): Free Stock Analysis Report
 
WILLIAMS COS (WMB): Free Stock Analysis Report
 
ALTRIA GROUP (MO): Free Stock Analysis Report
 
SCHWAB-US DV EQ (SCHD): ETF Research Reports
 
WISDMTR-LC DIV (DLN): ETF Research Reports
 
WISDMTR-TOT DIV (DTD): ETF Research Reports
 
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