Business

Starved for income? Hungry investors hunt dividend ETFs

NEW YORK(Reuters) – Rock-bottom interest rates may be great for lots of people – but not for savers.

FILE PHOTO: A trader works on the floor at the New York Stock Exchange (NYSE) in New York, U.S., October 31, 2019. REUTERS/Brendan McDermid

With a brand-new quarter-point rate cut from the Federal Reserve and ten-year government bonds yielding 1.84%, there is almost nowhere for them to go. That is why dividend exchange-traded funds (ETFs) have been grabbing investor attention.

The most prominent names in the space include the $47.8-billion Vanguard Dividend Appreciation, the $34.8-billion Vanguard High Dividend Yield, the $18.9-billion SPDR S&P Dividend and the $17.8-billion iShares Select Dividend.

Caveat emptor, though. In the dividend world you need to be cautious and understand what exactly you are buying. A few pointers:

* Not all dividend strategies are alike.

Novice investors might assume that all dividend-oriented funds are similar. Not so. In fact the differences from one fund to the next can be “enormous,” said Dave Nadig, managing director of independent news and analytics site ETF.com.

For instance: Some funds screen purely for high yield, while others screen for dividend growth. Those two strategies are going to give you very different underlying portfolios.

In particular, hunting for yield alone is a risky game to play – some companies may offer sky-high dividends because they are in deep trouble. Meanwhile dividend “growth” doesn’t necessarily mean high overall payouts; VIG, for instance, offers a modest 1.77% yield, which may not be quite what you were hoping for.

The point: “Really understand what’s under the hood,” Nadig said.

* Dividend ETFs are not bonds.

Many investors think of dividend-paying equities as bond proxies – a way to generate some income, while still enjoying the upside potential of stocks. They are also seen as a relatively safe portion of the stock market, as big, blue-chip companies are typically well-positioned to weather downturns.

But make no mistake, these are equities we are talking about. That means there is downside exposure, and you will be assuming much more risk than if you simply stuck to Treasuries.

“If the Dow takes a dive of 30%, guess what?” said Tom Roseen, head of research services for fund analysts Lipper at Refinitiv. “Your equity ETF is likely going to take a dive, too.”

* Understand payout schedules.

Dividend ETFs pass along yield, but on their own schedule. They essentially collect the dividends of the underlying securities, and then most set a quarterly date for payout. That may come in the form as cash, or as reinvestment in shares of the fund, depending on the ETF. Read the prospectus for details.

You can plow the cash back in on your own through your brokerage via dividend reinvestment programs (DRIPs), which can be a powerful tool for long-term returns. So powerful, in fact, that you may need to think about rebalancing down the road, lest your portfolio becomes overly skewed toward equities.

* Look abroad.

American companies have actually become quite stingy when it comes to dividends, so you may want to look overseas.

In emerging markets “you can find yields like 4-5-6%,” Nadig said.

One suggestion: Cambria’s Emerging Shareholder Yield, with its basket of almost 100 holdings and 3.6% yield. “Their well-managed, diversified approach is something that a lot of investors could benefit from,” Nadig added.

* Remember the taxman.

Generating cash flow is great – but as always, Uncle Sam will want a taste. If your ETFs are in a tax-deferred retirement account, not to worry yet. But if they are in a regular brokerage account, then tax implications come into play.

The dividends you receive will either be qualified or non-qualified, depending on factors like how long stocks were held by the fund. If non-qualified, dividends are subject to ordinary income tax rates. If qualified, they are subject to capital gains tax rates, which are lower; those depend on household income, but typically knock you 15%.

* Yield is one factor among many.

Yes, yield is a sexy top-line number. But there are other important attributes to keep in mind as well, such as “consistent return, expenses, total return, and preservation of capital,” said Roseen.

Good thing Lipper ranks all such funds, with five being its highest grade in any given category, and a few getting fives across the board. One Roseen mentions: SPDR International Dividend, with its eye-catching 4.34% yield.

Do that due diligence, and no matter what the economy or stock market does, dividend ETFs will be slipping a little extra cash in your pockets for many years to come.

Editing by Chizu Nomiyama; Follow us @ReutersMoney or here


Source link

health news headlines provided courtesy of Medical News Today.

Advertisement

Advertisement Small

Follow Me

Collaboratively harness market-driven processes whereas resource-leveling internal or "organic" sources. Competently formulate.

View More Job Search Results

Calendar

June 2020
M T W T F S S
« May    
1234567
891011121314
15161718192021
22232425262728
2930  

Pages

Recent Comments

    RSS Meks Blog

    • How to change the WordPress username? An easy step-by-step guide May 14, 2020
      Wondering how can you change WordPress username once you set up your blog or site? Read all about it in our helpful guide! The post How to change the WordPress username? An easy step-by-step guide appeared first on Meks.
      Ivana Cirkovic
    • What’s the best WordPress comment plugin to use? April 13, 2020
      Wondering whether to use WordPress comment plugin or go with the native option? Here are our thoughts and recommendation on which one to choose. The post What’s the best WordPress comment plugin to use? appeared first on Meks.
      Ivana Cirkovic
    • Top 12 WordPress Newsletter plugin recommendations March 17, 2020
      What better way to gain more subscribers and grow your email list than with a little help of a top WordPress newsletter plugin, right? Only, with so many of them on the market – which one to choose? The post Top 12 WordPress Newsletter plugin recommendations appeared first on Meks.
      Ivana Cirkovic
    • Top 3 proven methods to monetize your WordPress site or blog December 17, 2019
      Eager to learn how to monetize your WordPress site or blog in an easy way? Read our guide and learn all about it! The post Top 3 proven methods to monetize your WordPress site or blog appeared first on Meks.
      Ivana Cirkovic
    • Top 8 WordPress audio player plugins to enhance your podcast or music November 15, 2019
      What are the top WordPress audio player plugins to choose from for your next music or podcast project? Take your pick from our suggestions! The post Top 8 WordPress audio player plugins to enhance your podcast or music appeared first on Meks.
      Ivana Cirkovic
    • How to add Instagram photo feed to your WordPress site (in 5 minutes!) October 1, 2019
      How (and why) to add Instagram to WordPress and see more benefits from that match? We give you all the details and tools to do it successfully yourself! The post How to add Instagram photo feed to your WordPress site (in 5 minutes!) appeared first on Meks.
      Ivana Cirkovic
    • 15 best headline & blog title generator tools to easily boost your SEO September 12, 2019
      Ready to increase traffic to your website today? Use these headline generator tools and improve your click-through-rates! The post 15 best headline & blog title generator tools to easily boost your SEO appeared first on Meks.
      Ivana Cirkovic
    • How to create a Facebook Page for your blog (plus PRO tips) September 4, 2019
      Wondering how to create a Facebook Page for your blog knowing that you really do need one? Follow our in depth guide and learn how to create and manage attractive and successful Facebook Page! The post How to create a Facebook Page for your blog (plus PRO tips) appeared first on Meks.
      Ivana Cirkovic
    • Beginners guide on how to redirect a page in WordPress August 29, 2019
      Whether you’re trying to redirect a page in WordPress or just want to discover and understand why it’s important, use this guide to help you get ahead of it and learn all there is to it. The post Beginners guide on how to redirect a page in WordPress appeared first on Meks.
      Ivana Cirkovic
    • The best Facebook Groups for SEO to improve your knowledge and rankings August 21, 2019
      Are you tired of searching for the best Facebook groups for SEO to improve your knowledge and learn about the tricks from the trade? The post The best Facebook Groups for SEO to improve your knowledge and rankings appeared first on Meks.
      Ivana Cirkovic

    Text

    Distinctively utilize long-term high-impact total linkage whereas high-payoff experiences. Appropriately communicate 24/365.

    Archives