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Dividend Growth ETFs are Ideal for This Environment

Dividend Growth ETFs are Ideal for This Environment

BRoader equity benchmarks are showing signs of weakness in the first four months 2022. This could indicate that investors should be prepared for lower returns going forward.

Investors can thrive in such environments by investing in dividend growth stocks. Investors don’t have to stock-pick, as there are many exchange traded funds available, including the Invesco Dividend Achievers ETF(PFM)Focus on companies that have a track record of increasing payouts.

Bank of America strategists believe that the S&P 500 is well-positioned for low price returns. However, dividends could make a significant difference. They have been responsible for more than a third of total returns since 1936. Jack Hough reports on Barrons.

PFM follows the NASDAQ US Broad Dividend Achievers Index. That is because PFM doesn’t allow dividend-payers to join it. The NASDAQ US Broad Dividend Achievers Index demands that its member firms have increased cash distributions for at least ten consecutive years.

Barrons says that payouts as a percentage profit are at record lows, which suggests ample potential for dividend increases.

The 12-month PFMs distribution rate of 1.92% is $718.5 million. PFMs distribution rate of 1.92% is not as high as the dividend yield on S&P 500. PFMs 375 holdings actually have the resources to keep increasing payouts for years. Broadcom, a semiconductor company (NASDAQ:AVGO) is an example.

The stock has returned more then 2,000% in the past decade. While this might not seem like an income investment, shares pay 2.8%. The company’s market value is 7% and the free cash flow is 7%. Payments seem well-covered. According to Barrons Broadcom announced a 14% increase in December payments.

Barrons also highlighted Dow components Caterpillar (NYSE CAT) and Merck(NYSE:MRK), Fifth Third Bancorp, NASDAQ:FITB, and Hewlett Packard NYSE:HPQ as companies with strong dividend growth potential. All four of these stocks are part the PFM portfolio. Warren Buffetts Berkshire Hathaway recently purchased a stake in the tech company. The company has an annual free cash flow yield (12%), which means it can allocate capital to shareholder rewards.

Warren Buffett’s Berkshire Hathaway recently announced an important new stake in HP Inc.(HPQ), the printer and personal computer maker. Barrons notes that HP’s recent gains were fueled by cost-cutting and stock buybacks. Also, there was a demand for home office equipment during this pandemic.

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The views and opinions expressed in this article are those of the author and not necessarily those of Nasdaq, Inc.

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