3 Ways to Squeeze More Dividend Income
3 Ways to Squeeze More Dividend Income
June 2, 2011
SAN DIEGO (ETFguide.com) - When the financial crisis hit, many companies cut back on their dividend payments or cut them out entirely. But things are finally looking up in that department.
Since 1926, dividends have accounted for one-third of the total return for stocks, and today, exchange-traded funds that pay high dividends are gaining attention among investors who want secure income. What is so appealing about dividend paying ETFs and which ones should you focus on?
Dividends are payments that are made by a corporation to those who invest in its company. They are usually distributed by well-established companies and paid out on a quarterly, semi-annual or annual basis. When companies increase the amount of their dividend payout, it demonstrates the confidence the company has in their future earnings and their financial well-being. Simply put, if you invest in the right company, you get a share of their profits paid to you on a regular basis.
Just within the first quarter of this year, 117 companies within the S&P 500 (NYSEArca: SPY) announced that they would be increasing their dividend distribution, and according to Howard Silverblatt, the Senior Index Analyst at S&P, the value of these increases equals ‘$16.6 billion’. Since dividends are gaining such popularity, we’ll focus on three categories that will help investors get the most out of dividend paying ETFs.
The Financial Sector
The largest dividend increases have come from within the financial sector (NYSEArca: XLF). JPMorgan Chase (NYSE: JPM) recently increased its annual dividend from .20 cents to $1 a share. Wells Fargo (NYSE: WFC) and State Street (NYSE: STT) also increased their dividend payments for the first time since the financial crisis just a few years ago. Other financial companies, including Citigroup (NYSE: C), have begun reinstating their dividend payments. With so many companies increasing their dividend payouts in the financial sector, it is definitely a good option for investors who want more dividend income.
The Technology Sector
Another good income source for dividend investors is in the technology sector (NYSEArca: XLK). It may come as a surprise, because the technology sector has a history of paying minimal dividends, but if you compare the industry to ten years ago, it is no longer filled with bootstrapping startups. For example, Cisco Systems said last month that it would begin paying shareholders $1.3 billion per year in dividends, which is a first for the company. Also, Intel has increased their dividend payouts over the past several quarters. It looks like the technology sector has become a good source of dividend income.
Dividend Focused ETFs
One other category that you should focus on if you’re looking to boost dividend income would be dividend focused ETFs. For example, the SPDR S&P Dividend ETF (NYSEArca: SDY) tracks the S&P High Yield Dividend Aristocrats Index, which measures the performance of the 50 highest dividend yielding components of the S&P Composite 1500 Index. The Vanguard Dividend Appreciation ETF (NYSEArca: VIG) tracks the Dividend Achievers Select Index, which includes stocks that have a history of increasing dividends and excludes those with low potential of increasing dividends. Similarly, the WisdomTree Large Cap Dividend Fund (NYSEArca: DLN) tracks the WisdomTree Large Cap Dividend Index, which measures the performance of the large-cap segment of the dividend-paying market in the U.S.
These are exciting times for investors who are looking for more dividend income. News of well-established companies reinstating or increasing their dividend payouts has been a highlight of the New Year and focusing on the areas discussed in this article is one way to squeeze more income for your investment portfolio.