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Summary Dividend growth expected to rise. Financials and technology companies are raising dividends. ETF options to track areas of dividend growth. By Todd Shriber & Tom Lydon U.S. dividend increases fell slightly last year, $54.8 billion from $54.9 billion in 2013, but that modest downtick does little to damage the broader dividend growth thesis. Nor was 2014’s slightly lower level of dividend growth enough to keep investors from pouring billions of new capital into dividend exchange traded funds. Said S&P in a note out Wednesday: According to S&P Dow Jones Indices, 971 dividend increases were reported during the fourth quarter of 2014 compared to the 885 increases which were reported during the fourth quarter of 2013. For all of 2014, 3308 issues increased their payments, up 14.3% from the 2895 issues that increased their payments during 2013. With dividend growth on the rise, investors poured over $10 billion into dividend ETFs last year, once again making payout funds the primary drivers of asset growth for strategic beta ETFs . In 2014, the four largest U.S. dividend ETFs – the Vanguard Dividend Appreciation ETF (NYSEARCA: VIG ) , the Vanguard High Dividend Yield ETF (NYSEARCA: VYM ) , the iShares Select Dividend ETF (NYSEARCA: DVY ) and the SPDR Dividend ETF (NYSEARCA: SDY ) – added over $4.1 billion in new assets combined. Last year, the best-performing dividend ETFs were those with large utilities sector allocations. Buoyed by a significant drop in 10-year Treasury yields, the utilities sector was the best performer in the S&P 500. For example, DVY and the RevenueShares Ultra Dividend ETF (NYSEARCA: RDIV ) returned an average of 16.5% last year. Those ETFs have an average utilities weight of 37.7%. While utilities remain a favorite destination for income investors, dividend growth opportunities continue to appear to in the technology and financial services sectors, the two largest sector weights in the S&P 500. Says Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices: On a sector basis, using the S&P 1500 as the benchmark for U.S. domestic common issues, that 1,012 issues now pay regular cash dividends up from 1,000 in Q3 2014 and 990 at the end of Q2 2014. Nine Financial sector issues increased in Q4, after four issues increased during Q3. As a result, 91.2% of the issues in the Financials sector paid a cash dividend, up from 89.9% in the third quarter. Issues paying a dividend in the Information Technology sector increased to 40.1% from 38.6% in Q3, but remain the sector with the lowest percentage of issues paying. Among ETFs with large weights to financials and tech names, the WisdomTree Total Dividend ETF (NYSEARCA: DTD ) and the WisdomTree U.S. Dividend Growth ETF (NASDAQ: DGRW ) saw robust 2014 asset growth on a percentage basis. DTD, which allocates a combined 34% of its weight financials and tech, added $134.7 million of its $565 million last year. DGRW features a nearly 20% weight to tech, one of the largest weights to that sector among all U.S. dividend ETFs. The ETF added $176 million of its $358.5 million in AUM last year. DGRW and DTD returned an average of 13.4% in 2014. Importantly, there is plenty of room for big bank dividends to grow in 2015. U.S. Bancorp’s (NYSE: USB ) payout would need to rise another 73% just to get back to what the bank paid in 2008. Bank of America’s (NYSE: BAC ) dividend is up 400% this year, but at 5 cents per quarter, that dividend is nowhere close to the 64 cents a share paid for the third quarter of 2008. According to Silverblatt: 2015 should easily set another record for cash dividend payments. A word of caution: while the dollar aggregate of dividend cuts were flat for the fourth quarter, over half the cuts came from energy issues. Lower oil prices and oil price uncertainty, both of which hurt energy stocks over the past six-months and devastated many small-cap energy issues, have spilled over to the dividend world. This is not the financial dividend meltdown of 2008 and 2009, but energy does account for over 11% of dividends in the general market. If lower oil prices cut into earnings and cash-flow, dividends could eventually be hurt. WisdomTree Total Dividend Fund (click to enlarge) Tom Lydon’s clients own shares of DVY. Todd Shriber owns shares of DGRW. Scalper1 News
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