ETFs
Dividend Growth Potential Found in These ETFs
It has long been said that the technology sector and other groups often associated with the growth factor do not offer significant dividend yields. Just look at the Nasdaq-100 Index (NDX). This important large-cap growth benchmark has a rolling 12-month dividend yield of just 0.55%.
However, as Alphabet’s recent dividend launches show (GOOG) and Facebook’s parent meta-platforms (META) confirm, a growing number of NDX components are paying dividends. This adds to the income appeal of ETFs like the Invesco QQQ Trust (QQQ B+) and the Invesco NASDAQ 100 ETF (QQQM B).
While Alphabet and Meta now pay dividends, eight of QQQ and QQQM’s top 10 stocks have this status, with Amazon (AMZN) and Tesla (TSLA) being the exception. It is possible that more member companies of QQQ and QQQM will become dividend stocks. More importantly, it seems likely that those that already are will be dividend producers.
Although technology has not been a haven for dividends, this status is gradually changing. Some QQQ/QQQM stocks can measure the time between their initial dividend announcement and today, two or three decades from now.
“For the most part, technology companies and growth stocks are not recouping the cash they generate and returning it to investors in the form of dividends,” noted Bella Albrecht, analyst at Morningstar. “Instead, this cash is reinvested in the business to fuel additional growth or returned to investors through share buybacks. Yet the announcement of dividends by big tech companies continues a long-standing trend.
Obviously, dividend launches are attractive in the short term. But in the long run, income-focused investors want payout growth. Some QQQ and QQQM titles are engaged in an admiral style. These names include several of the ETF’s biggest tech holdings, like Microsoft (MSFT), Apple (AAPL) and chip giant Broadcom (AVGO).
“[The] the returns offered by most tech names are relatively low. [But their] the potential for dividend distributions to increase as well as earnings over time is attractive to many dividend growth-focused investors,” added Albrecht.
For investors looking for viable sources of long-term dividend growth, QQQ and QQQM are even more relevant. Indeed, many ETFs dedicated to this growth are not heavily allocated to technology stocks and large-cap growth stocks.
Many underweight these groups because funds use the length of payout increase sequences as their inclusion methodology. This means stocks like Alphabet and Meta won’t reside in these funds for years. But this is not a problem with QQQ and QQQM.