Seeking Dividend ETFs With Growing Payouts

Hello, YieldAlley readers! In this week’s newsletter:

• Cash Income Opportunities: Money market funds, brokered CDs, Treasury bills, and ultra short-term bond ETFs.

• Read of the Week: Seeking Dividend ETFs With Growing Payouts

• Elsewhere: Fed expresses concern with inflation, Consumers are feeling inflation, Larry Summers talks interest rate hike, Tesla lowers the cost of its FSD subscription, Global investors are moving into bonds from equities

Cash Income Opportunities For the Week Ending April 12, 2024

All brokerage cash guides and playbooks can be found on YieldAlley.com.

Government Money Market Funds (7-Day Yields)

Charles Schwab Money Market Funds

• SNVXX (Schwab Government Money Fund - Investor Shares): 5.03%

• SNSXX (Schwab U.S. Treasury Money Fund - Investor Shares): 5.02%

Fidelity Money Market Funds

• SPAXX (Fidelity Government Money Market Fund): 4.95%

• FDLXX (Fidelity Treasury Only Money Market Fund): 4.93%

Merrill Edge and Merrill Lynch Money Market Funds

• TTTXX (BlackRock Liquidity Funds: Treasury Trust - Institutional Class): 5.19%

• TOIXX (Federated Hermes Treasury Obligations Fund - Institutional Class): 5.15%

Vanguard Money Market Funds

• VMFXX (Federal Money Market Fund): 5.27%

• VUSXX (Treasury Money Market Fund): 5.28%

Brokered CD Rates (6-Month)

• Charles Schwab: 5.32%

• E*Trade: 5.30%

• Fidelity: 5.25%

• Merrill Edge and Merrill Lynch: N/A

• Vanguard: 5.35%

T-Bill Rates

• 3-Month: 5.38%

• 6-Month: 5.35%

• 1-Year: 5.15% (up from 5.07% last week)

Ultra Short-term Treasury Bill and Floating Rate Note ETFs (30-Day Yields)

• SGOV (iShares 0-3 Month Treasury Bond ETF): 5.29%

• BIL (SPDR Bloomberg 1-3 Month T-Bill ETF): 5.20%

• USFR (WisdomTree Floating Rate Treasury Fund): 5.35%

• TFLO (iShares Treasury Floating Rate Bond ETF): 5.38%

Seeking Dividend ETFs With Growing Payouts

When seeking dividend income, dividend ETFs are ideal for investors who want to diversify their income across multiple dividend stocks. Dividend ETFs not only save us time from researching specific stocks, but they also spread the risk to avoid being heavily invested in a single company. Imagine putting all your eggs in Enron, which paid out $372 million in dividends during its last year of operations!

Similar to companies that pay a stock dividend, dividend ETFs will set an ex-dividend date, a record date, and a payment date. To receive the dividend, you must buy the ETF before the ex-dividend date. Some dividend ETFs may choose to reinvest dividends back into the fund.

When evaluating a dividend ETF, we pay attention to high-quality dividend yields and total returns, growing dividend payouts, diversification, and low expense ratios.

Let’s walk through VIG (Vanguard Dividend Appreciation ETF) as a practical example.

VIG currently has a 30-day SEC yield of 1.72%. In 2023, its dividend yield was 1.88%, when it paid an annual dividend of $3.21 per share. This reflected an 8% increase over its 2022 dividend. When we crunched the numbers, we discovered that VIG’s dividend payout has increased on average by 11% every year since 2006. This is a positive sign that the companies that VIG holds continue to grow their dividends.

Top holdings in VIG include Microsoft, Apple, Broadcom, J.P. Morgan Chase, UnitedHealth, Visa, Exxon, Mastercard, and more. When seeking consistent, stable yield, we look for high-quality, blue-chip companies. These companies span a variety of industries, from technology to healthcare to financial services.

Importantly, VIG charges an extremely low expense ratio of 0.06%. This is lower than some money market fund expense ratios from managers such as Fidelity and BlackRock. State Street offers a comparable dividend ETF called SDY (SPDR S&P Dividend ETF) which charges a 0.35% expense ratio. Despite that, VIG has outperformed SDY on an annualized basis for most of the last 15 years.

Other dividend ETF funds include:

• DIA (SPDR Dow Jones Industrial Average ETF Trust)

• CGDV (Capital Group Dividend Value ETF)

• VIG (Vanguard Dividend Appreciation Index Fund ETF Shares)

• SDY (SPDR S&P Dividend ETF)

• VYM (Vanguard High Dividend Yield Index Fund ETF Shares)

• DVY (iShares Select Dividend ETF)

Please note that these ETFs hold stocks that can and will fluctuate in value. Dividend stocks and ETFs are not immune to market volatility and can experience large drawdowns in periods such as 2008.

For dividend investors uncomfortable with individual stock selection, dividend ETFs offer a great alternative to seeking a basket of high-quality dividend stocks while benefiting from growing annual income and capital appreciation.

• Fed expresses concern with inflation progress, increasing doubts around rate cuts (link)

• Consumers are feeling the pinch of inflation (link)

• Former U.S. Treasury Secretary Larry Summers talks interest rate hike (link)

• Tesla cuts the cost of its self-driving service (link)

• Global investors pull back from equities and back into bonds and fixed income, amid inflation concerns (link)

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