Dividends can be a great source of income for investors during different market cycles. There are companies that have paid out dividends to their shareholders for decades, irrespective of the market condition, offering predictable income and growth potential.
A recent report suggests that from 1930 to 2020, dividend income contribution to the total return of the S&P 500 Index averaged 41%.
A convenient and easy way to track dividend paying stocks is to check dividend indices. Here are five popular dividend indices and funds that track them.
1. Nasdaq U.S. Dividend Achievers Select Index
The Nasdaq U.S. Dividend Achievers Select Index is a modified market capitalization weighted index. To become a part of the Dividend Achievers Index, a company must have increased its dividend payout each year for the last 10 or more consecutive years as well as meet all laid-out liquidity requirements. The index was launched in March 2006 at a base value of 1,169.75. The index has 247 constituents with industrials, consumer discretionary, healthcare, financials and technology as the dominant sectors. The top holdings of the index add up to 31% and include:
- Microsoft (MSFT)
- Johnson & Johnson (JNJ)
- JP Morgan Chase (JPM)
- Walmart (WMT)
- Visa (V)
- UnitedHealth (UNH)
- Home Depot (HD)
- Proctor & Gamble (PG)
- Comcast (CMCSA)
- Oracle (ORCL)
The index is tracked by Vanguard Dividend Appreciation ETF (VIG). The ETF follows a passive, full replication approach. It has an expense ratio of 0.06% and has $63.28 billion in assets under management.
2. Dow Jones U.S. Dividend 100 Index
Launched in August 2011, the Dow Jones U.S. Dividend 100 Index is designed to measure the performance of high dividend yielding stocks in the U.S., with a record of consistently paying dividends. The index is composed of 100 stocks with 41.9% allocation towards the ten constituents. In terms of sectors, financials, industrials, technology and consumer goods add up to 73%. The top ten stocks currently are:
- Pfizer (PFE)
- Cisco (CSCO)
- BlackRock (BLK)
- Broadcom (AVGO)
- PepsiCo (PEP)
- Home Depot (HD)
- Merck (MRK)
- Texas Instruments (TXN)
- Coca Cola (KO)
- Verizon (VZ)
The index is tracked by Schwab U.S. Dividend Equity ETF (SCHD). Launched in 2011, the fund currently has $27.74 billion in assets under management and an expense ratio of 0.06%.
3. S&P 500 Dividend Aristocrats Index
Launched in 2005, the S&P 500 Dividend Aristocrats Index measures the performance of companies that have increased dividends every year for the last 25 consecutive years. The index follows an equally weighting approach where each stock, irrespective of its size, has the same allocation. Currently, the index has 67 constituents with the top ten constituents having a 17.2% allocation. The two sectors—industrials and consumer staples—have a 20% allocation each, followed by materials and financials at 13% and 11.4%, respectively. The top ten constituents currently are:
- Nucor (NUE)
- Albemarle (ALB)
- West Pharmaceutical (WST)
- Amcor (AMCR)
- Pentair (PNR)
- Franklin Resources (BEN)
- Chubb (CB)
- Sysco (SYY)
- Walgreens Boots (WBA)
- NextEra Energy (NEE)
One of the popular ETFs tracking this index is the ProShares S&P 500 Dividend Aristocrats ETF (NOBL). Launched in 2013, the ETF has $8.59 billion in assets under management and an expense ratio of 0.35%.
4. Dow Jones U.S. Select Dividend Index
Launched in November 2003, the Dow Jones U.S. Select Dividend Index is a composition of leading U.S. stocks by dividend yield. The index is a composition of 100 stocks spread across different sectors. The top three sectors—utilities, financials and consumer goods—account for more than 55% of the weightage. The top 10 constituents add up to 19.1% with 2.4% as the weight of the largest constituent.
- Altria (MO)
- ONEOK (OKE)
- AT&T (T)
- Philip Morris (PM)
- PPL (PPL)
- Pfizer (PFE)
- Prudential Financial (PRU)
- IBM (IBM)
- Exxon (XOM)
- FirstEnergy (FE)
The iShares Select Dividend ETF (DVY) provides exposure to broad-cap U.S. companies with a consistent history of dividends. Launched in 2003, the fund has $18.19 billion in assets under management and an expense ratio of 0.38%.
5. S&P Global Dividend Aristocrats Index
Launched in 2013, the S&P Global Dividend Aristocrats Index offers exposure to global companies that focus on dividend income. The index is designed to measure the performance of the highest dividend yielding companies within the S&P Global Broad Market Index that have followed a policy of increasing or stable dividends for at least 10 consecutive years. The weight for each index constituent is capped at 3% with the number of stocks from each country limited to 20. The index has stocks from 17 countries, with Canada, U.S., Japan, Hong Kong and United Kingdom having the maximum representation.
- SmartCentres REIT (SRU.UN)
- H&R Block (HRB)
- Keyera (KEYUF)
- Enagas SA
- Exxon (XOM)
- Pembina Pipeline (PBA)
- Shaw Communication (SJR)
- Power Assets Holding
- Brandywine Realty (BDN)
- Philip Morris (PM)
SPDR S&P Global Dividend ETF (WDIV) tracks the S&P Global Dividend Aristocrats Index. Launched in 2013, the fund has $333.49 million in assets under management and an expense ratio of 0.40%.
There are many other dividend indices and ETFs, such as the Morningstar U.S. Dividend Growth Index tracked by iShares Core Dividend Growth ETF (DGRO) and Vanguard High Dividend Yield Index ETF (VYM) that tracks the FTSE High Dividend Yield Index, among others. Dividend ETFs can be a part of the core investment strategy for investors looking for a predicable source of income along with capital appreciation over the long term. The payout mechanism for a particular ETF as well as the taxation aspect must be understood before investing.
Disclaimer: The author has no position in the index or stocks mentioned. Investors should consider the above information not as a de facto recommendation, but as an idea for further consideration. The report has been carefully prepared, and any exclusions or errors in it are totally unintentional. The data related to ETFs and Indices is as on September 13, 2021, and partially as on August 31, 2021.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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