Big companies? Check. A share of the profits? Check.
Investors seek out companies that pay dividends, because they like the constant stream of income, and the caliber of companies that pay them.
The Delicious Dividends fund on Stash lets you invest in 98 of the largest, dividend-paying companies in the U.S.
What are dividends?
A dividend is a percentage of profit, paid out by a company to its shareholders on a regular basis to investors, most typically on quarterly basis or once a year. Companies that consistently pay dividends tend to be big and have more stable revenue and profits.
Fun fact: Companies paying dividends are as old as the stock market itself.
In 1600, the Dutch East India Trading Company, a conglomerate that started specialized in the East Asian spice trade, paid its investors an annual dividend of 18%, and managed to do that for close to 200 years, after which the company ultimately dissolved.
In the 21st century, the majority of S&P 500 companies pay their investors dividends. The index contains many of these companies.
Why do companies pay them?
Dividends are one way companies attract shareholders to their stocks, and they contribute to overall stock market gains.
About 45% of S&P returns over the last 80 years have been in the form of dividend payments, according to research.
Here’s another fun fact: Although Berkshire Hathaway, the multi-billion dollar conglomerate founded by the Oracle of Omaha Warren Buffett, has never paid a dividend, Buffett’s famed investment portfolio is loaded with Blue Chip stocks that do pay dividends.
What’s in the fund?
Delicious Dividends offers exposure to some of the largest and best-known companies in the world are in the fund, including Coca-Cola, Chevron, Home Depot, Intel, Microsoft, and Johnson & Johnson.
Delicious Dividends is based on the The Schwab US Dividend Equity ETF. The ETF, in turn, follows an index called the Dow Jones U.S. Dividend 100 Index, which tracks big companies with a record of paying high-yield dividends for at least the past ten years, and that have a strong financial footing. It trades under the ticker symbol SCHD.
Source: Charles Schwab, as of 11/21/2017
(In case you were wondering: You can’t invest directly in an index. But you can invest in a fund that follows an index, such as Delicious Dividends.)
Delicious Dividends has an expense ratio of 0.07%, which is significantly cheaper than the average expense ratio for an ETF, which is 0.44%, according to the Wall Street Journal. Its year-to-date return, as of November 27, is 15.62%. That compares to a 12% return for the Vanguard High Dividend Yield ETF (VYM), and 7.98% for iShares Core High Dividend ETF (HDV) for the same time period. (Both ETFs are similar to Delicious Dividends.) It also ranks among the top large value funds evaluated by U.S. News & World Report.
The Delicious Dividends fund pays out dividends to your Stash cash account every quarter.
One of the potential benefits of investing in a fund like Delicious Dividends is that it picks a basket of stocks with a long track record of paying dividends, and not only that, dividends that have tended to increase year over year.
What are the risks?
It’s important to understand that there is no requirement for companies that pay dividends to continue paying them, or to pay them at the same price hey have historically. Industrial giant GE, for example, recently cut its dividend in half, due to cash flow issues and a falling stock price. Dividend payments are also considered taxable income, and you should consult with a tax expert about potential implications.
While all funds are subject to changing economic conditions, including inflation and recession, dividend-paying companies are particularly reliant on market conditions. A poor economy might hamper the ability of these companies to pay a dividend. Similarly, an environment where interest rates are rising might have a negative impact on dividend-paying stocks. Investors may choose to put money into safer securities, such as U.S. Treasuries, which pay higher interest when rates go up.
- Delicious Dividends offers exposure to big, name brand companies with a track record of paying dividends.
- Dividends are one way that companies distribute their profits to shareholders
- Delicious Dividends follows an index of 100 companies whose dividend yield tends to be higher than average.
Source: Tradeview. Chart operates in real time, with delays. *See Footnote
FootnotesCharting platform used for this analysis is provided by TradingView and may be delayed. Stash does not verify any data and disclaims any obligation to do so. Stash cannot and does not represent or guarantee that any of the information available via TradingView is accurate, reliable, current, complete or appropriate for your needs.
Schwab U.S. Dividend Equity ETF seeks to track as closely as possible, before fees and expenses, the total return of the Dow Jones U.S. Dividend 100 Index. The fund invests at least 90% of its net assets in stocks that are included in the index. The index is designed to measure the performance of high dividend yielding stocks issued by U.S. companies that have a record of consistently paying dividends, selected for fundamental strength relative to their peers, based on financial ratios. Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones). The Dow Jones U.S. Dividend 100 Index is a product of S&P Dow Jones Indices LLC and/or its affiliates.