Why Dividend Stocks Are A Big Deal
Plus The Best ETFs to Help You Get Started
You might be wondering what’s the big deal about buying stocks with a strong history of growing dividends. Just looking at some of the research from S&P Global (NYSE:SPGI) shows that: “Since 1926, dividends have contributed to approximately one-third of total return while capital appreciations have contributed two-thirds. Therefore, both sustainable dividend income and capital appreciation potential are important to total return expectations.”
According to a study at the Hartford Funds from 1930 to 2017 dividends contributed about 42% of the total returns for the S&P 500 Index.
Many high dividend stocks offer a higher yield today, will grow their income to protect your purchasing power (bond interest payments are generally fixed), and can appreciate in value over time. Dividend stocks also have retirement appeal because they have exhibited lower volatility over time.
The evidence just shows that companies that reward stockholders with increasing dividends year after year are solid businesses with wide moats have a competitive advantage, generate stable revenues and positive cash flows even in recessions and market downturns. And they tend to widen that moat or competitive advantage most every year.
A really simple way to get started with these stocks is by investing in dividend aristocrats, an exchanged traded fund (ETF) that holds the stocks from the list of dividend aristocrats, here are a few of the best choices to get you started:
ProShares S&P 500 Dividend Aristocrats ETF (NOBL)
This is the only ETF that focuses exclusively on the S&P 500 Dividend Aristocrats, and has increased its dividend every year since its inception. The fund paid a total annual dividend of $1.61 for 2020, which is equivalent to a 2.02% yield.
SPDR S&P 500 Dividend ETF (SPDY)
This ETF tracks the performance of the S&P High Yield Dividend Aristocrats Index. This index include the 65 Dividend Aristocrats and additional high-dividend income companies with consecutive dividend increases for 20 years or more. The annual dividend equals a 2.70% dividend yield, having grown 12.63% in the last year.
SPDR S&P Global Dividend ETF (WDIV)
If you want to add some exposure to international stocks, this ETF might be right for you. It tracks to the S&P Global Dividend Aristocrats Index designed match the S&P Global BMI (Broad Market Index) for companies that have increasing or stable dividends for at least ten consecutive years.
Floyd Saunders is the author of Figuring Out Wall Street. His next book, Five Simple Paths to Wealth will be published in March. You can learn more about him at his author web site.
Note: We do not offer investment advice or recommendations. The information here is intended to be educational only. Do your own research.