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Dividend Growth Potential Found in Surprising ETFs

BY | ETF Database
05/10/2024 | 748 VIEWS
It’s long been said the tech sector and other groups often associated with the growth factor aren’t home to big dividend yields. Just look at the Nasdaq-100 Index (NDX). That prominent large-cap growth benchmark sports a trailing 12-month dividend yield of just 0.55%.However, as recent dividend initiations by Alphabet (GOOG) and Facebook parent Meta Platforms (META) confirm, an increasing number of NDX components are paying dividends. That adds to the income allure of ETFs like the Invesco QQQ Trust (QQQ B+) and the Invesco NASDAQ 100 ETF (QQQM B). With Alphabet and Meta now dividend payers, eight of the top 10 holdings in QQQ and QQQM have that status,  with Amazon (AMZN) and Tesla (TSLA) being the exception. It’s possible that more QQQ and QQQM member firms will become dividend stocks. More importantly, it appears likely those that already are will be payout growers.Tech Increasing Dividend ProminenceWhile tech hasn’t been a haven for dividends, that status is gradually changing. Some stocks in QQQ/QQQM can measure the time from their initial dividend announcements through today in two or three decades. “For the most part, technology companies and growth stocks typically do not take the cash they generate and send it back to investors through dividends,” noted Morningstar analyst Bella Albrecht. “Instead, that cash is reinvested in the business to fuel additional growth or returned to investors through share buybacks. Still, the announcement of dividends by key big-tech companies extends a longtime trend.” Obviously, dividend initiations are nice over the near term. But over the long term, income investors want payout growth. Some QQQ and QQQM holdings have obliged in admiral fashion. Such names include several of the ETFs’ biggest tech holdings, like Microsoft (MSFT), Apple (AAPL), and chip giant Broadcom (AVGO). “[The] yields offered by most tech names are relatively small. [But their] potential to grow dividend payouts along with earnings over time is attractive for many investors focused on dividend growth,” added Albrecht. For investors looking for viable sources of long-term dividend growth, QQQ and QQQM are all the more relevant. That’s because many of the ETFs dedicated to this growth aren’t heavily allocated to tech and large-cap growth stocks. Many are underweight those groups because the funds use length of payout increase streaks as the methodology for inclusion. That means stocks like Alphabet and Meta won’t reside in those funds for years to come. But that’s not a concern with QQQ and QQQM.For more news, information, and analysis, visit the ETF Education Channel.

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