What DIVS’ Holdings Can Tell Us

There are many dividend ETFs currently available to investors, with each one offering different exposure, income generation, and total return. Finding standouts in the group is difficult, but by focusing on some key metrics, investors can unearth compelling products, including the SmartETFs Dividend Builder ETF (DIVS), which is managed by Guinness Atkinson Asset Management.

DIVS was up 7.27% in December, while the MSCI World Index benchmark was up 4.27% during the same period. For the full year in 2021, DIVS generated a total return of 23.60%, compared to the index return of 21.82%, according to the firm.

Over the course of the year, strong stock selection in industrials, IT, and healthcare more than offset the allocation drag from owning no banks or energy stocks — which both performed well over the year — and from being overweight in consumer staples, which generally lagged the market through 2021, according to the firm.

Looking under the hood at a fund’s holdings is important, especially when assessing dividend ETFs and their ability to generate income for investors.

In 2021, out of DIVS’ 35 holdings, 31 companies grew their dividends, three companies kept their dividends flat, and just one company cut its dividend. This follows on from 2021, which saw 28 companies grow their dividends, six keep their dividends flat, and one company cut, according to the firm.

The average dividend growth across all 35 companies included in the fund was 6.3%, and the firm generally saw dividend payments surprise to the upside.

The largest dividend growth in 2021 came from Otis Worldwide, which increased its dividend by 20% year-on-year. As the world’s largest manufacturer by revenue of elevators and escalators, Otis has an installed base of greater than 2 million elevators under service. 45% of revenue is from new equipment installations, while 55% is recurring maintenance revenues. Servicing the installed base has 3x higher profits, and competitive advantages have ensured a high client retention rate (~80%), contributing to high revenue and cash flow growth, enabling the higher dividend distributions, according to the firm.

DIVS’ financial holdings were also among the companies with the largest year-on-year dividend increases. 

Aflac grew its dividend by 17.9% in 2021, following 3.7% growth in 2020. BlackRock grew its dividend by 13.8% in 2021, following 10.0% growth in 2020. 

Arthur Gallagher grew its dividend by 6.7% in 2021, an increase from 4.7% growth in 2020. CME Group grew its dividend by 5.9% in 2021, after the 13.3% growth in 2020, and Deutsche Boerse grew its dividend by 3.4% in 2021, following the 7.4% growth in 2020, according to Guinness Atkinson.

The three companies which held their dividends flat for 2021 — Henkel, Reckitt Benckiser, and ABB — all cited cautiousness and uncertainty as reasons for capital preservation. These companies continue to have strong balance sheets and low leverage, leading Guinness Atkinson to believe that they have the ability to grow their dividends in the future.

Danone, a global food and beverage company, the one company to announce a cut in its dividend by 7.6% for 2021, grew its dividend in 2020 by 8.3%.

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