EC 5 Dividend ETFs For Growth

Concerns over rising interest rates and bond yields have dampened the appeal for the dividend stocks and ETFs for the most part of the year (read: Are Dividend ETFs Losing Their Multi-Year Shine?).

This is because the Fed is on track to raise interest rates sometime later this year for first time since 2006 given the substantial improvement in the economy after the first quarter slump –– though the timing remains unclear. However, the pace of increase would be gradual and slower than market expectation, owing to sill low inflation and job market recovery. This might compel investors to recycle their portfolio in the dividend space.

Dividend Growth Slowing Down

Dividends, which account for more than 40% of total returns over the longer term, have been badly hit by the meltdown of the energy sector and the resultant payout cuts. As per the S&P Dow Jones Indices, U.S. dividend net increases (increases less decreases) slid 0.6% year over year to $12.5 billion in the second quarter of 2015. From a 12-month look, dividend net increases declined in double digits.

Only 562 U.S. companies reported dividend hikes compared to 696 companies in the year-ago quarter while 85 reduced their dividend versus 57 in the year-ago quarter. Notably, the energy sector represents 45% of all dividend cuts during the quarter. The slowing pace of dividend growth creates an opportunity to buy the dividend products at a cheaper price.

Why An Entry Point?

Currently, the stock market is trapped in a web of uncertainty, especially with China and Greece turmoil. Further, global growth concerns, a strong dollar and lower oil prices are adding to the worries (read: Inside The Crash in China ETFs).

On the other hand, the U.S. economy is growing at a moderate pace, injecting continued bullishness into the stock market. This is primarily thanks to continued job gains, recovering housing fundamentals, increased consumer confidence, higher spending power and most importantly the merger frenzy.

Not to forget, most of the U.S. large companies are sitting on a huge pile of cash and are in a position to increase the payouts to their shareholders. The cash reserves will ensure that these companies are not plagued by financial trouble in a rising interest rate environment. As a result, focus on dividend growth securities or the application of some niche strategies to dividend investing rather than betting on the top yielders could be more helpful for an uphill ride in the current rocky market.

How to Play?

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