5 Ways To Play Growing Dividends With ETFs

Dividends have been consistently a constant source of income for investors seeking regular returns during both bull and bear markets. According to various studies, dividends accounted for more than 40% of the total returns over the longer term.

The dividend-paying securities offer both safety, in the form of payouts, and stability, in the form of mature companies that are less impacted by the large swings in stock prices. This is especially true as companies that pay dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis (see: all the Large Cap ETFs here).

Q3 Dividends Sits At Record High

Per S&P Dow Jones Indices, dividend net increases (increases less decreases) soared 152% to $15 billion in the third quarter as 438 companies reported dividend hikes while 93 reported decreases. As such, dividend payments for the S&P 500 were a record $105.4 billion in the quarter.

The trend is expected to continue in the coming months as most large companies have huge cash piles on their balance sheet and are in a position to increase payouts to their shareholders. Additionally, a steady rise in interest rates as well as Trump’s proposed tax reform or repatriation would stimulate dividend growth, going forward. Notably, 2017 dividends are on track to post a gain of 7%, up from 5.6% growth last year (read: 6 ETFs Set to Win on Trump's Tax Reform).

Investors should also note that a company that consistently increases its dividends has stronger fundamentals, suggesting rising cash flows, good liquidity and a strong balance sheet.

How to Play

Given this, investors could tap growing dividends in the form of ETFs. Below, we have highlighted five dividend ETFs that offers excellent dividend growth potential, any of which could be a solid pick for investors in the long term:  

Vanguard Dividend Appreciation ETF (VIG - Free Report)

This is the largest and most popular ETF in the dividend space with AUM of $25.3 billion and average daily volume of about 571,000 shares. The fund follows the NASDAQ US Dividend Achievers Select Index, which is composed of high-quality stocks that have a record of growing dividend year over year. It holds 185 securities in the basket with none accounting for more than 4.5% share. The fund charges 8 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: 5 Cheap Dividend ETFs for an Uncertain Market).

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