“Very positive outlook for dividends”, says S&P Dow Jones, as US high-dividend ETFs see inflows

Jul 4th, 2012 | By | Category: Equities

Data from S&P Dow Jones Indices shows that dividend net increases (increases less decreases) were $12.0 billion in the second quarter of 2012, setting what is believed to be a new record dividend payout in aggregate dollars for US domestic listed common stock issues.

“Very positive outlook for dividends” says S&P Dow Jones, as US high-dividend ETFs see inflows

“Dividends are back in style with investors looking for yields during a time when companies can afford to give more and want to satisfy shareholders”, said Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices

S&P Dow Jones Indices reported 505 dividend increases during the second quarter of this year, a 13.7% gain over the 444 increases reported during the second quarter of 2011. Thirty-seven companies, of the approximately 10,000 US traded issues, decreased their dividend in the second quarter of this year compared to 21 this time last year.

“Dividends had another great quarter, with actual cash payments increasing over 14% and the forward indicated dividend rate reaching a new all-time high,” said Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices. “Payout rates, which historically average 52%, remained near their lows, at 31%. At this point, we expect to see double-digit growth in actual dividend payments for the remainder of 2012, which would equate to a 16% gain over 2011.”

FEATURED PRODUCT

SPDR S&P US Dividend Aristocrats ETF (USDV)

– Tracks the S&P High Yield Dividend Aristocrats Index,
providing exposure to high-yielding US equities

– Comprises the 60 highest dividend-yielding constituents
of the S&P Composite 1500 Index that have increased
dividends every year for at least 25 consecutive years

– Physically replicated with full transparency to holdings;
major holdings include AT&T, Pitney Bowes, HCP, Old
Republic and Cincinnati Financial; current dividend yield
3.73%

– UCITS compliant, London listed, UK Reporting Status,
eligible for ISAs and SIPPs, TER 0.35%, cross-listed on
Deutsche Börse, SIX Swiss and Borsa Italiana

SSgA expands range of high yield ‘Dividend Aristocrats’
SPDR ETFs

The percentage of non-S&P 500 common issues paying a dividend increased to 42.7% in the second quarter up from 41.7% in the first quarter and 41.4% at the end of the fourth quarter of 2011. Silverblatt also determined that yields for paying issues increased to 2.77% at the end of the second quarter, from 2.58% at the end of the first quarter.

The yield change was the result of both increased dividends and lower second quarter prices. “Yields remain relatively high, with the quarterly yield increase due to a combination of higher dividends and the 4% price decline,” noted Silverblatt.

Looking ahead, Silverblatt sees many positive signs for dividends. “Dividends are back in style with investors looking for yields during a time when companies can afford to give more and want to satisfy shareholders – all of which makes for a very positive outlook for dividends.”

Investors are clearly recognising this positive outlook, with US-listed high-dividend ETFs such as the Vanguard Dividend Appreciation ETF (VIG), the SPDR S&P Dividend ETF (SDY) and the iShares Dow Jones Select Dividend Index ETF (DVY) all enjoying significant inflows this year. According to data from the ETF Industry Association, VIG, SDY and DVY have received net inflows of $1,796m, $592m and $357m, respectively, so far this year (YTD 30/06/2012).

UK-based investors can access US high-dividend stocks via the London-listed SPDR S&P US Dividend Aristocrats ETF (USDV) from State Street Global Advisors (SSgA). Essentially, this ETF aims is to deliver exposure to those US equities with highest sustainable dividend yields.

USDV achieves this aim by tracking the performance of the S&P High Yield Dividend Aristocrats Index. The S&P High Yield Dividend Aristocrats Index is comprised of the 60 highest dividend-yielding constituents of the S&P Composite 1500 Index that have increased dividends every year for at least 25 consecutive years. These stocks have both capital growth and dividend income characteristics, as opposed to stocks that are pure yield, or pure capital oriented. USDV comes with a TER of 0.35%.

Other possibilities for UK-based investors include the Utilities S&P US Select Sector Source ETF (XLUS) from Source and, potentially, the PowerShares FTSE RAFI US 1000 ETF (PSRF) from Invesco. These funds are listed on the London Stock Exchange and come with TERs of 0.30% and 0.39% respectively.

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