These Dividend ETFs Offer Yield, Growth, and Protection

pay me now dividendGrant Wasylik: Dividend growth is ignored by far too many investors, when in reality it should be the most integral factor to consider when it comes to picking stocks and ETFs.

Over long time periods, there’s one kind of stock that outperforms all others.

It comes down to dividends …

Buying companies that pay dividends will serve you better than buying companies that don’t pay dividends. But for the most important factor — and to achieve the highest returns over the long haul — you need to drill down a bit further.

The determining factor is whether a company GROWS its dividend.

Yes, dividend-growth stocks beat all other types of stocks over time.

If you want to get rich by investing in the stock market over multiple decades, your best bet is to buy companies that consistently grow their dividends.

A study by research firm Ned Davis Research proves it  …

Annualized Returns of S&P 500 Stocks by Dividend Policy (1/31/1972 — 1/31/2016)


Source: Ned Davis Research

As you can see, “Dividend growers & initiators” sport the highest annualized returns (9.7%) over the last 44 years.

Notice that other dividend policies generated solid returns as well. “Dividend payers with no change” returned 7.1% and “All dividend-paying stocks” returned 8.8%.

At the bottom of the barrel, stocks with no — or negative — dividend policies fared far worse.“Dividend cutters and eliminators” lost 1.1% and “Non-dividend-paying stocks” returned only 2.2%.

You may think, well — that’s great if I had started decades ago. But what about now?

Well, similar outperformance is happening now …

Look at the performance ranks for three dividend-growth-focused ETFs from ProShares from 6/30/15 to 6/30/16.

ProShares Dividend ETF Performance

Source: Morningstar

All three ProShares ETFs outperformed 99% of their Morningstar peers over the last year.

And each ETF destroyed a comparable broad-based index over the past 12 months, too:

 ProShares Russell 2000 Dividend Growers ETF (SMDV) — up 19.0% vs. Russell 2000 Index down 6.7%.

 ProShares S&P MidCap 400 Dividend Aristocrats ETF (REGL) — up 17.7% vs. S&P MidCap 400 Index up 1.3%.

 ProShares S&P 500 Dividend Aristocrats ETF (NOBL) — up 12.7% vs. S&P 500 Index up 4.0%.

What do these ETFs all have in common?

Long-standing dividend growth …

NOBL focuses exclusively on S&P 500 companies that have grown dividends for at least 25 consecutive years. REGL focuses exclusively on S&P MidCap 400 companies that have grown dividends for at least 15 consecutive years. And SMDV focuses exclusively on Russell 2000 companies that have grown dividends for at least 10 consecutive years.

How can you put the idea of dividend growth to work in your portfolio?

1. Buy one or all of three ProShares ETFs — any of these would be fine long-term holdings.

2. Buy one of the other 450-plus U.S.-listed dividend-growth strategies available in the fund universe (open-end, closed-end or exchange-traded funds). To narrow the search down, here are some of my favorite ETFs with a dividend-growth focus:

 iShares Core Dividend Growth ETF (DGRO): Targets stocks with five years of uninterrupted annual dividend growth (earnings payout ratio must be less than 75%). This ETF has 425 holdings … a dividend yield of 2.5% … and a 0.12% expense ratio.

 Schwab U.S. Dividend Equity ETF (SCHD): Includes stocks with a consistent record of paying dividends, including the use of four fundamental metrics (cash flow to debt, return on equity, dividend yield and 5-year dividend growth rate). This ETF has 110 holdings … a dividend yield of 3% … and a 0.07% expense ratio.

 SPDR S&P Dividend ETF (SDY): Owns the highest-yielding S&P 1500 Index constituents that have increased their dividends for at least 20 straight years. This ETF has 108 holdings … a dividend yield of 2.4% … and a 0.35% expense ratio.

 Vanguard Dividend Appreciation ETF (VIG): Includes stocks that have increased their dividends for at least 10 years (excludes REITs and other companies with low potential for dividend growth). This ETF has 185 holdings … a dividend yield of 2.2% … and a 0.09% expense ratio.

 WisdomTree U.S. Quality Dividend Growth ETF (DGRW): Targets dividend-paying stock with high returns on assets and equity over the past three years and strong expected earnings growth. More of a futuristic look here, as this strategy attempts to select stocks that can offer high dividend growth in the future. This ETF has 290 holdings … a dividend yield of 2.2% … and a 0.28% expense ratio.

3. Partner up with Uncommon Wisdom Daily’s dividend expert Nilus Mattive. He’s been buying dividend growth stocks since the sixth grade — over 25 years. Nilus recommended a true dividend gem earlier this year. It’s an unknown microcap stock that consistently pays three types of dividends. Our dividend guru bought this stock in his dad’s account (all holdings are available for subscribers to see). His dad is thrilled — it’s up over 70% in just six months! And Nilus thinks there’s still more upside ahead. If you’re interested in becoming an Income Superstarclick here to see that pick and all of Nilus’ other top dividend plays.

In summary, if you’re an investor with a long-term focus, you’re better off buying dividend-paying stocks than non-dividend-paying stocks. But you’re better off buying dividend-growing stocks, most of all.

The Vanguard Dividend Appreciation ETF (NYSE:VIG) was unchanged in premarket trading Wednesday at $84.92 per share. VIG has gained 9.21% year-to-date, easily beating out the S&P 500′s 5.71% rise in the same period.


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