This year started with rock-bottom interest rates, limiting the yield of fixed income investments and leading investors to search for income through dividends.
Then, as inflation reached decades-high levels and the Fed began its aggressive interest rate hikes, dividend-paying companies were seen as more stable and of higher quality. Notably, 2022 was a year in which most segments of the market – both equities and fixed income products – struggled.
“Advisors sought out dividend ETFs in 2022 as an alternative to more interest rate sensitive bond products in an effort to receive stable income and have upside potential while the Fed continued to hike,” Todd Rosenbluth, head of research at VettaFi, said.
These are the three top-read dividend stories in 2022:
Investors looked to the ALPS Sector Dividend Dogs ETF (SDOG ) as the fund offers a high dividend yield and overweight to defensive sectors. Amid the market environment of 2022, it has been an ideal way to get exposure to U.S. large caps, particularly when compared to funds that track the S&P 500.
SDOG has a dividend yield of 3.34% as of December 15, according to SS&C ALPS Advisors. The fund’s underlying index utilized an equal weight methodology, reducing sector bias that can be found in broad-based U.S. equity indexes. Notably, with energy being the top-performing sector for the second consecutive year, SDOG weighted the sector 11.31% compared to just 3.82% in the S&P 500 as of the publication of “Big Dividends, Other Benefits With SDOG.”
MLPs were top of mind as investors searched for income this year. The historical average yield of MLPs over the past 10 years has been around 7%, which means that if an investor invested $100, on average, they would be paid $7 each year.
While income has always been a primary reason that investors allocate to MLPs, interestingly, as the year evolved, so did investors’ primary reason for allocating to the segment. As midstream was among the top-returning segments in 2022, more and more investors began allocating for total return, rather than income alone.
Historically, dividend stocks, particularly the growers comprising the WisdomTree U.S. LargeCap Dividend Fund (DLN ), outperform non-dividend payers and the broader market when markets decline. By the end of January, the ETF was outperforming the S&P 500 by 462 basis points.
vettafi.com owned by VettaFi, which also owns the index provider for SDOG. VettaFi is not the sponsor of SDOG, but VettaFi’s affiliate receives an index licensing fee from the ETF sponsor.