With the 10-year bond yield climbing higher at the start of the year, many advisors are looking to equities for income. In the initial days of 2025, bonds fell in value amid expectations that the Fed’s rate cutting efforts could be on hold for longer than expected. The yield on the 10-year Treasury bond recently approached 4.8%, its highest level in months.
During a mid-January webcast, VettaFi asked advisors how they primarily generated additional income in their portfolios. The majority (59%) said dividend-paying stocks. Dividends were significantly more popular than duration plays and credit spreads (22%). Options income and other alternative income strategies were even less popular.
According to S&P Dow Jones Indices, there were 2,450 U.S. companies that increased their dividend payments in 2024. While this was down slightly from the 2,548 who did so in 2023, the amount of dividend payments climbed. In 2024, $71 billion of dividends were paid to shareholders. Dividend cuts are still rare, but do occur. In 2024, 132 companies decreased their dividend payments, down 66% from the year earlier.
Dividend ETFs provide the benefits of diversification, as not all dividend-paying companies are the same.
There are a lot of ways to gain exposure to dividend growing companies via ETFs; we will briefly touch on a few of them.
Historical Track Record of Dividend Growth
The Vanguard Dividend Appreciation ETF (VIG ), the SPDR S&P Dividend ETF (SDY ), and the ProShares S&P Dividend Aristocrats ETF (NOBL ) all own shares of companies with long records of dividend growth. They differ in starting universes and the required history of dividend increases.
NOBL owns S&P 500 constituents with 25-plus years of dividend growth. In contrast, SDY owns S&P 1500 companies with 20 or more years of growth. This provides SDY with multi-cap exposure. Meanwhile, VIG owns companies with a decade or more of dividend increases that are also in a very broad market index.
The different criteria results in distinct portfolios. VIG recently had 23% of assets in information technology stocks, much more than SDY (6%) and NOBL (3%). NOBL and SDY favored consumer staples and industrials more than VIG.
Future Dividend Growth via an Index Fund
The WisdomTree US Quality Dividend Growth Fund (DGRW ) takes a forward-looking approach to dividends. The fund applies quality and growth screens to dividend-paying companies regardless of their history. DGRW recently had 23% of assets in information technology stocks.
Turning to Active ETFs for Dividends
An increasing number of firms have launched actively managed ETFs in recent years. The Capital Group Dividend Growers ETF (CGDG ) is one example. CGDG launched in September 2023 and has $1.5 billion in assets. The fund invests in companies which management believes will provide dividend growth over the long term. CGDG recently had 17% in information technology stocks and also had half of its assets invested outside of the U.S.
The T. Rowe Price Dividend Growth ETF (TDVG ) launched in August 2020 and has approximately $750 million in assets. Management believes a track record of dividend increases is an excellent indicator of financial health and growth prospects. The fund recently had 19% of assets invested in information technology stocks.
In November 2022, the Federated Hermes US Strategic Dividend ETF (FDV ) launched. The $150 million Federated Hermes fund invests in high dividend-paying U.S. stocks with dividend growth potential. Unlike its peers, FDV is focused outside of the information technology sector (5% of assets). Consumer staples and utilities stocks combined represented one-third of the portfolio.
For more information, please visit VettaFi.com | ETF Trends.
