General Electric (GE) has been paying a dividend to shareholders for 119 consecutive years. But if you look at the history of GE’s dividend, it regularly has been cut. Most recently, just at the end of October, the company lowered its $0.12 per share quarterly dividend down to $0.01 per share quarterly dividend. It should also be noted that its dividend was only at $0.12 per share after the company cut it from $0.24 per share per quarter in November of 2017.
GE’s move to slash its dividend down to the mere bone is just another reminder of the massive downside risks associated with investing in dividend-paying stocks. You see because when GE cut its dividend from $0.24 per share per quarter down to $0.12 per share per quarter, the stock dropped more than 7% from where it was the previous day. The same decline occurred this past October when the dividend was cut from $0.12 down to $0.01; the stock fell 8.7%. Furthermore, since the day prior to the announcement of the first dividend cut, GE stock is down an astonishing 63%.
But just because GE cut its dividend and its stock price has fallen off a cliff doesn’t necessarily mean all dividend-paying stocks are extremely risky. Or more so, that there is no way to lessen the risk associated with dividend-paying stocks.
While GE has been paying a dividend for 119 years, the company has regularly cut its dividend when it gets in financial trouble; whether that be due to the economy shifting or whatever the reason. Solid, trustworthy dividend-paying companies are those that have proven that they can weather the tough economic years and continue to not only maintain their previous dividend amount but increase the amount they are paying, year-in, year-out, no matter the economic circumstances.
The companies I am speaking of are referred to as the “Dividend Aristocrats.” These are companies that have increased their annual dividend amount for a minimum of 25 consecutive years. Currently, there are 53 companies out of the S&P 500 that fall into this category.
Buying shares of one of those companies can and likely would lower your risk of having a GE type of decline to one of your “safer” holdings.
But there is an even “safer” investment than just buying one single dividend aristocrat or even a handful of them for that matter. And that would be if you bought a Dividend Aristocrat Exchange, Traded Fund. Let’s take a look at a few of your options if you were interested in making this type of investment.
The first would be the all mighty ProShares S&P 500 Dividend Aristocrats ETF (NOBL). NOBL is a true dividend aristocrat ETF in the fact that it follows the 25 consecutive year rule in order for it to hold a stock. It carries an expense ratio of 0.35%, has a yield of 2.16% and currently has $3.26 billion in assets under management. Of course, it owns 53 stocks, which are all equally weighted, is up a measly 2.16% year-to-date, but has increased by 7.38% over the past year and 10.9% over the last three years.
Another option is the SPDR S&P Dividend ETF (SDY) which tracks a weighted yield index of 50 dividend paying companies from the S&P 1500, which have increased dividends for at least 20 consecutive years. SDY has an expense ratio of 0.35%, but its yield is 4.94%. It currently has 109 holdings and $15.9 billion in assets under management. Year-to-date the fund is up 3.36%, 7.69% for the year, and 12.34% over the last three years.
Another option is the ProShares S&P MidCap 400 Dividend Aristocrats (REGL) which tracks an equal-weighted index of midcap companies which have increased their dividend for at least 15 consecutive years. The fund currently charges 0.40%, has just over $400 million in assets under management and yields just 1.93%. It has 48 holdings with a weighted average market cap of $5.75 billion. Year-to-date the fund is up 4.14%, 6.94% over the past year and 13.09% over the last three years.
So, which one is right for you?
Well, that is all based on what you're looking for and how much risk you want to take on. NOBL is the least risky, but also likely the slowest growing. SDY pays the highest dividend but has higher risk due to the way the portfolio is built. REGL though may be the riskiest of all because it is focused on mid-cap stocks, which could try to expand and take on too much debt, ultimately hurting their ability to continue paying a dividend. But, REGL is also likely the fastest grower because the midcap stocks, in general, can grow at a more rapid pace than the top S&P 500 companies.
How much risk verse growth or income is it that you want? None of the three ETF’s mentioned above are likely to allow you to retire decades early, but they also aren’t likely to put you in the poor house. Lastly, always remember the story of the tortoise and the hare, slow and steady wins the race.
Matt Thalman
INO.com Contributor - ETFs
Follow me on Twitter @mthalman5513
Disclosure: This contributor did not hold a position in any equity mentioned above at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
I fully agree with Ken. It's a shame to write such a propaganda piece of crap. You may as well subscribe to Morningstar!
I have concluded that when 85 percent of trades are done by trading programs, the individual must ignore the marketplace. All of my positions pay 3 to as high as 14 percent dividends. As of today they are all in the red, but my dividends pay me a living. I would not consider a stock that does not pay a dividend.
I'll give you this much, Matt. You're consistent. You're 100% full of disinformation. Always. Dividend cuts are always a risk, but that doesn't discredit the strategy. It's called return on investment. Or, put another way, return commensurate with risk. I realize that this article is nothing more than an advertisement for some funds who are probably greasing you to push them to the public. Frankly, INO should be ashamed for even printing this crap as an 'editorial'. It's an advertisement by a very poor advertiser. So people dump their money into these ETFs and generate massive fees for the managers of said funds. Say these people hire a financial advisor. So essentially they're paying twice. Sounds like an excellent idea. And of course now is the perfect time to bash dividend investing, right Matt? Everything with a ticker is getting creamed, even those ETFs. Yields are up, time to try to talk up the market. Shame, shame, shame. You guys are truly pathetic.