The Fourth Quarter Was Kind To Dividend Investors

The fourth quarter was positive on multiple fronts for dividend investors as domestic payout growth increased, taking some dividend exchange traded funds along for the why.

What To Know

The SPDR S&P Dividend ETF SDY jumped 7.3% in the final three months of 2019. The $19.78 billion SDY tracks the S&P High Yield Dividend Aristocrats Index, which requires member firms to have minimum dividend increase streaks of at least 20 years.

Data indicate some SDY components likely kept those streaks alive in the last three months of 2019.

“For Q4 2019, aggregate increases amounted to $11.97 billion, up 1.0%, from Q4 2018's $11.85 billion,” said S&P Dow Jones Indices. “Aggregate dividend cuts, however, decreased 69.9% to $1.35 billion from $4.48 billion for Q4 2018, a period which included the $3.82 billion General Electric dividend cut.”

Why It's Important

SDY is home to 112 stocks, a number that could expand thanks to last year's batch of dividend hikes.

“For the year ending 2019, net dividends rose $45.4 billion, compared to a gain of $58.4 billion for 2018, as increases were $56.6 billion versus $66.5 billion, and decreases were $11.1 billion compared to $8.1 billion for the prior period,” according to S&P Dow Jones.

SDY allocates about a third of its combined weight to the industrial and consumer staples sectors while financial services and materials names combine for 24%. Despite the mostly defensive positioning, SDY trades at a discount to the S&P 500.

Last year was the eighth straight year of record payouts, bolstering the allure of ETFs like SDY.

What's Next

“On a per share basis, S&P 500 Q4 2019 dividend payments for the S&P 500 increased 7.19% to a record-setting $15.21, from the Q4 2018's $14.19,” notes S&P. “On an aggregate basis, index components paid $126.4 billion in dividends this quarter, also a record, up from $119.8 billion in Q4 2018. For the year, the index paid a record $56.24 per share, setting its eighth consecutive record year, up from 2018's $53.75, with an aggregate $485.4 billion to shareholders, compared to 2018's $456.3 billion.”

Adding to the allure of dividend growth strategies like SDY this year are expectations that domestic dividend growth could return to a double-digit rate.

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