As dividend cut worries subside, three market analysts predict what's ahead for yield payers


Dividend dangers appear to be subsiding.

As yield-paying companies recover from the coronavirus-driven slowdown that led many of them to cut their payouts earlier in the year, investors may be wondering whether the dividend trade is yet safe.

Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA Research, told CNBC’s “ETF Edge” on Monday that in the second quarter of 2020, twice as many companies cut or suspended their dividends as those who initiated or raised theirs, according to S&P Dow Jones Indices.

In the third quarter, three times as many companies initiated or raised their dividends than those that took preventative action, Rosenbluth said.

“We’re seeing a number of technology companies raise their dividends,” he said. “Accenture, Microsoft, Texas Instruments — these were all companies that raised their dividend in September.”

That benefits the dividend-focused exchange-traded funds with heavy weightings in technology, plays such as the ProShares S&P Technology Dividend Aristocrats ETF (TDV), the Vanguard Dividend Appreciation ETF (VIG) and the WisdomTree U.S. Quality Dividend Growth Fund (DGRW), Rosenbluth said.

“Technology companies as of late have really been driving the dividend growth story and I think that’s something we’re going to see more of heading into the fourth quarter,” he said.

Although a healthy dividend is often seen as a sign of resilience, ProShares’ Simeon Hyman cautioned investors to look under the hood.

“Year to date … we calculated about 15% of dividend payers have cut this year, so, it’s not trivial, but it’s not an unmitigated disaster,” Hyman, a global investment strategist at the firm, said in the same “ETF Edge” interview.

“But if you split it up, the vast preponderance of those cuts are from low-quality companies, whether they’re levered companies, whether they’re companies with high dividend payout ratios, high dividend yields [or] low credit quality,” Hyman said.

Of the names considered to be higher quality — many of which are found in ProShares’ S&P 500 Dividend Aristocrats ETF (NOBL) — “one company has cut year to date,” the strategist said.

“So, there are definitely haves and have nots in the dividend resiliency equation,” he said.

Ed Rosenberg, senior vice president and head of ETFs at American Century, also encouraged buyers to review their investments.

“You also want to look at the other side of the ledger, the debt,” he said in the same “ETF Edge” interview. “How much is their debt increasing just to sustain that dividend?”

“Overall, companies that are good-quality companies … that continue to raise their dividend without taking on debt, without cutting in environments like we just went through, generally, they can be good companies to go for, but you really do want to look at what’s happening with those companies just to make sure that they’re not increasing any of their risk just to make sure that dividend continues to pay,” he said.


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