growing divdends over time will more than compensate for the lower current yield.
A question I get on occasion is 'are Exchange Traded Funds (ETFs) and Closed Ended Funds (CEFs) a good fit for a dividend growth strategy?'
Over the years I have held many ETFs and CEFs in my income portfolio. At the time, my thought process was that these funds would diversify my risk and add a degree of stability to my income portfolio. Initially, I had high hopes for their success.
Here are several ETFs/CEFs I currently hold or have held in the past:
Vanguard Financials ETF (VFH) seeks to track the performance of a benchmark index that measures the investment return of financial stocks.
PowerShares International Dividend Achievers Portfolio (PID) seeks to match the performance of the International Dividend Achievers Index by investing at least 90% of its total assets in dividend paying common stocks of this index. This index tracks the performance of dividend paying American Depositary Receipts or ordinary stocks trading on the NYSE, NASDAQ or AMEX.
Vanguard REIT ETF (VNQ) seeks to provide a high level of income and moderate long-term capital appreciation by tracking the performance of a benchmark index that measures the performance of publicly traded equity REITs.
SPDR S&P Dividend ETF (SDY) seeks to replicate as closely as possible, before expenses, the price and yield of the S&P High Yield Dividend Aristocrats Index. The Fund uses a passive management strategy designed to track the price and yield performance of the Dividend Index.
Vanguard High Dividend Yield ETF (VYM) seeks to track the performance of a benchmark index that measures the investment return of common stocks of companies that are characterized by high dividend yields.
Vanguard Dividend Appreciation ETF (VIG) seeks to track the performance of a benchmark index that measures the investment return of common stocks of companies that have a record of increasing dividends over time.
Eaton Vance Tax-Advantaged Global Dividend Opportunity (ETO) is a diversified, closed-end management investment company. The Fund’s investment objective is to provide a high level of after-tax total return. It invests primarily in dividend-paying common and preferred stocks.
Vanguard Long-Term Bond ETF (BLV) seeks to match the investment performance of the Lehman Brothers Mutual Fund Long Government/Corporate Index. Holdings include Corporate Notes/Bond, Treasury Notes/Bonds and Government Agency Securities.
Back to the original question: Are Exchange Traded Funds (ETFs) and Closed Ended Funds (CEFs) a good fit for a dividend growth strategy? At this point, I would say no, for the most part. For many of the same reasons that international investments are not a good fit for a dividend-based investing strategy, I have found the same true with ETFs and CEFs.
It has been my experience that ETFs/CEFs dividends exhibit a higher degree of income volatility than individual dividend stocks. Since most of the above funds are based on an index, they are forced to buy the bad stocks with the good stocks. This will inherently increase the volatility of the funds dividend payments. Those with international holdings are subject to currency conversion and a different dividend payout philosophy. Of the above ETFs/CEFs, ETO is the only one I currently hold.
Instead of ETFs and CEFs, I prefer to focus on solid individual dividend growth stocks such as:
Exxon Mobil Corp. (XOM), formed through the merger of Exxon and Mobil in late 1999, is the world's largest publicly owned integrated oil company. The company has paid a cash dividend to shareholders every year since 1882 and has increased its dividend payments for 32 consecutive years. Yield: 3.0%
Johnson & Johnson (JNJ) is a leader in the pharmaceutical, medical device and consumer products industries. The company has paid a cash dividend to shareholders every year since 1944 and has increased its dividend payments for 52 consecutive years. Yield: 2.7%
PepsiCo, Inc. (PEP) is a major international producer of branded beverage and snack food products. The company has paid a cash dividend to shareholders every year since 1952 and has increased its dividend payments for 42 consecutive years. Yield: 2.7%
3M Co. (MMM) provides enhanced product functionality in electronics, health care, industrial, consumer, office, telecommunications, safety & security and other markets via coatings, sealants, adhesives, and other chemical additives. Yield: 2.5%
In the income portion of my portfolio, I place a great deal of value on stability and consistency. ETFs and CEFs have a difficult time delivering either.
Full Disclosure: Long XOM, JNJ, PEP, MMM, ETO in my Dividend Growth Portfolio. See a list of all my dividend growth holdings here.
- Stocks Providing Positive Feedback With Increased Dividends
- Dividend Growth Stocks With A Defined-Benefit Pension
- 7 Higher-Yielding Stocks With A Low Price To Book
- Don't Forget: Buy And Hold Is Not Buy And Forget
- 5 Stocks With Strong Dividend Growth Metrics
Tags: XOM, JNJ, PEP, MMM, VFH, PID, VNQ, SDY, VYM, VIG, ETO, BLV,
Popular Posts - Last 7 days
Over time stocks fall in and out of favor with the media, analysts and investors. It is too easy to fall in love with a stock only to have ...
Life often deals us difficult circumstances to work through at what seems to be the most inopportune time. During economic downturns, many ...
Linked here is a detailed quantitative analysis of Genuine Parts Company (GPC). Below are some highlights from the above linked analysis: ...
Each Sunday I highlight any notable articles that I came across over the past week. Though I may not always agree with each of the articles ...
Linked here is a detailed quantitative analysis of Colgate-Palmolive (CL). Below are some highlights from the above linked analysis: Comp...
Linked here is a detailed quantitative analysis of Johnson & Johnson (JNJ). Below are some highlights from the above linked analysis: ...
Commitment is a word often thrown around, but rarely backed up with actions. Salesmen are committed to your needs until you sign on the dott...
Presented below are are my Dividend Growth Stocks portfolio holdings. This is not a recommendation to buy these securities. I have classifi...
Investing in dividend growth stocks is not about buying a current high yield, but instead building a high yield-on-cost over time. One of t...
Monday, October 31, 2011 will mark my fourth full year of writing as Dividends4Life . It is hard to believe another year has passed. Like th...