S&P 500 constituents continued to move alongside greater dividends to shareholders within the first half of the yr – at the same time as buybacks, one other technique firms use to return fairness to shareholders, slipped. Given the broad illustration of those greater payers in cyclical and defensive sectors, dividend-yielding ETFs are price a more in-depth look given their diversification advantages.
Within the first half of 2019, there have been 195 dividend will increase made by S&P 500 corporations and simply 5 decreases. This follows 356 and 380 will increase in 2017 and 2018, in keeping with Howard Silverblatt, an index analyst at S&P Dow Jones Indices.Within the second quarter of 2019, the median dividend enhance was eight.zero%, barely forward of the 7.9% within the first quarter of this yr, however behind the 10.zero% development in 2018.
In June, well being care firm Medtronic raised its quarterly dividend eight% to $zero.74 per share. CFRA forecasts earnings per share (EPS) to extend to $5.49 and $6.00 in FY 2020 (Apr.) and FY 2021, which permits ample monetary flexibility. MDT has paid a dividend since 1977 and is a member of the S&P 500 Dividend Aristocrats, a bunch of corporations which have raised their dividends for greater than 25 consecutive years.
Within the first half of 2019, 30 of the 57 S&P 500 Dividend Aristocrats raised their dividends, whereas none decreased or suspended the dividend. As soon as corporations have established a powerful report of dividend will increase, buyers come to count on them.
Goal is a fellow S&P 500 Dividend Aristocrat that elevated its dividend in June, although at a decrease development fee (three.1%). The buyer discretionary firm now pays a $2.64 per share annual dividend to its shareholders, persevering with a string of returning money to shareholders relationship again to 1965.
In Could, shopper staples firm Clorox hiked its dividend 10% to $four.24 per share, extending its annual dividend-increasing report since 1968. CFRA forecasts the family merchandise firm to generate EPS of $6.30 in 2019 and $6.69 in2020.
In February, T Rowe Value boosted its dividend eight.6% to $three.04 per share. CFRA expects the Financials sector firm to generate EPS of $7.40 in 2019 and $7.95 in 2020 and views the inventory as engaging.
February was additionally when CenturyLink slashed its dividend by greater than half to $1.00 per share, regardless of paying dividends since 1974. The sharp discount by the Communications Companies agency was a reminder that dividends, not like diamonds, are usually not eternally.
On the finish of June 2019, there have been $184 billion invested in divident-focused ETFs, aided by $four.eight billion of internet inflows within the second quarter.
CLX, MDT, TGT and TROW are all a part of the $5 billion ProShares S&P 500 Dividend Aristocrats Index ETF (NOBL). Client Staples (23% of property) and Industrials (21%) are the most important sectors within the ETF, however Financials (13%), Well being Care (11%), Supplies (11%) and Client Discretionary (10%) are additionally properly represented. CFRA’s optimistic score on NOBL stems from its low danger concerns and modest prices, together with its zero.35% expense ratio and tight bid/ask unfold.
The $19 billion SPDR S&P Dividend ETF (SDY) holds a few of the similar shares as NOBL but in addition consists of small- and mid-cap corporations which might be a part of the S&P 1500 Index and which have raised their dividends for 20 consecutive years. These embody MDU Assets and Phone & Knowledge Programs. On the sector stage, low-risk SDY has much less publicity to Industrials (17%) and Well being Care (7%) than NOBL, however extra to Utilities (10% vs. 2%) and Communications Companies (5% vs. 2%).
Whereas NOBL and SDY concentrate on corporations which have a protracted report of dividend will increase, World X Tremendous Dividend US (DIV) invests within the 50 highest-dividend-yielding securities within the U.S. These embody Amerigas Companions and Coty. Whereas DIV’s 7.four% dividend yield is far greater than its friends, CFRA finds the ETF to incur further earnings and dividend consistency danger.
This thematic analysis was initially printed on MarketScope Advisor https://www.cfraresearch.com/marketscope-advisor/ CFRA seems to be to repeatedly enhance the standard and supply of our analysis. To make sure that you proceed to obtain this and different related content material from CFRA, please submit your contact particulars right here.
Todd Rosenbluth is the director of ETF and mutual fund analysis at CFRA. Be taught extra about CFRA's ETF analysis right here.
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