An Aristocratic ETF For Dividend Growth Investors

Heading into this year, S&P 500 dividend growth was projected to slow. While that has been the case, payout growth among U.S. dividend payers is still sturdy, and the Federal Reserve's refusal to boost interest rates in the first half of the year has increased the allure of dividend stocks.

Record-Breaking Dividends

S&P Dow Jones Indices “notes that total shareholder return through regular cash dividends, as well as buybacks, set a record quarter at $257.6 billion, up from the previous record of $245.3 billion, which was set in Q4 2015. Dividends, which had posted seven consecutive quarters of record payments, declined in Q1 2016, as energy dividend cuts pulled the aggregate down. For the 12-month period ending March 2016, companies returned a record $974.6 billion in buybacks and dividends to investors, marking its fourth consecutive record and surpassing the prior record (annual or 12-months) of $954.6 billion, set in Q4 2015,” said the index provider.

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After hitting an all-time high last Friday, the SDPR S&P Dividend (ETF) SDY is up more than 14 percent year-to-date, solidifying its stats as one of the dividend ETFs benefiting from volatile markets and low interest rates.

Quite The High-Class ETF

SDY only holds stocks that a have a minimum dividend increase streak of 20 years. Due to the fact that the energy sector has been home to the bulk of negative U.S. dividend action for over a year, the sector's weight in SDY has dwindled to just over 3 percent. Eight sectors command larger weights in the ETF than energy.

“With the yield on the 10-year Treasury recently below 1.5 percent, investors have been seeking out alternative income strategies. Amid global economic concerns, tied in part to the Brexit vote, S&P Global Market Intelligence thinks a focus on companies with a consistent long-term record of dividend growth has merit,” said S&P Capital IQ in a recent research note. “Meanwhile, many of SDY's holdings increased their dividend in the second quarter, extending the long records. For example, WW Grainger (GWW), an industrial company, declared a 4.1 percent higher payout in April 2016. It was the distributor's 44th straight increase.”

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No stock accounts for more than 2.8 percent of SDY's weight. The ETF's largest sector weight is 24.2 percent to financial services, a sector that has been displaying favorable dividend growth trends for several years.

“SDY earns positive ranking inputs for the S&P Global Market Intelligence Quality Ranking and Qualitative Risk Assessment of its holdings; the former is quantitative based on earnings and dividend records, while the latter is qualitative from our equity research team. In addition, the ETF's constituents have strong credit profiles, as assessed by S&P Global Ratings,” added S&P Capital IQ.