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U.S. Dividend ETFs Could Outperform in Low-Yield Environment


As bond yields turn, income-starved investors can take a look at relatively high-yield dividend stocks and related exchange traded funds.

According to Andrew Garthwaite, a global equity strategist at Credit Suisse Group AG, investors should focus on dividend stocks as an alternative to low-yield bonds, reports David Wilson for Bloomberg.

Looking at the Standard & Poor’s 500 Dividend Aristocrats Index, the so-called dividend aristocrats typically outperfomed the S&P 500 index since 1999 when the yield on 10-year Treasury notes dipped, or underperformed the S&P 500 when 10-year yields rose.

The SPDR S&P Dividend ETF (SDY) , which is benchmarked to the S&P High Yield Dividend Aristocrats Index, only dipped 0.04% year-to-date as 10-year Treasury yields fell from about 2.2% at the start of the year to 1.8%, whereas the SPDR S&P 500 ETF (SPY) was down 0.34%. Over the past year, SDY rose 20.5% while SPY gained 19.9%.

The aristocrat dividend stock gauge tracks shares of companies that have increased dividends annually for at least 25 years. SDY has a 2.27% 12-month yield. [Quality Dividend ETFs with Consistent Yields]

For the slightly more adventurous, there are a number of high-yield dividend stock ETF options available. For instance, the PowerShares S&P 500 High Dividend Portfolio (SPHD) has a 3.28% 12-month yield, iShares Core High Dividend ETF (HDV) has a 3.27% 12-month yield and RevenueShares Ultra Dividend Fund (RDIV) has a 3.24% 12-month yield. Over the past year, SPHD rose 27.7%, HDV increased 20.7% and RDIV gained 31.0%.

“Low bond yields allow dividend yield as a style to outperform,” Garthwaite said. The relationship “has been particularly close in the U.S.”

Garthwaite also warned that the correlation has not manifested in European equities as high-dividend stocks in Europe fell behind in recent months while government bond fell. For instance, the Euro Stoxx 50 Index rose 15.2% over the past year, whereas something like the First Trust STOXX European Select Dividend Index Fund (FDD) , which tracks dividend-paying European stocks, gained 7.3% over the past year.

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.