How To Avoid The Mayhem In Dividend Stocks

For the income chasers who’ve been camped out in the utilities and telecom sectors, May was a wake-up call that investing solely on yield is not going to work forever in a mending economy. The average 4%+ yields for the defensive sectors have made them a favorite alternative for income investors frustrated by low bond payouts. But in May as the 10-Year Treasury yield shot up nearly a half a percentage point amid improving economic indicators and Fed chairman musings about the potential end to quantitative easing in the near(er) future, those two over-valued sectors got slammed.

YCharts has long laid out the case for focusing on income generating stocks that have a compelling growth story in both their dividend and their underlying business operation. The $16 billion Vanguard Dividend Growth ETF (VIG), with less than 1% invested in utilities and telecom puts more weight on growth factors over current yield. It managed a 1.2% gain in May. If you want to set your sights on the sector that’s been responsible for half of the dividend growth since the financial crisis began, the new WisdomTree U.S. Dividend Growth ETF (DGRW), with a 20% stake in tech stocks, is worth a look.

Source: YCharts

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