“With retiring baby boomers looking for income streams and the Fed intending to hold rates low into 2014, the search for yield has become a key theme for many clients,” State Street said in its announcement. “A global ‘flight to quality,’ driven largely by European sovereign debt woes, has continued to drive up Treasury prices, putting additional downward pressure on yields. The result is that Treasuries and other traditional sources of income are sometimes yielding close to or less than the rate of inflation. In this historically low-yield environment, dividend funds may provide significantly more attractive rates of income.”
Putting numbers to the dividend argument, State Street noted that from 1926 through March 31, 2012, dividends contributed more than one-third of the total return of the S&P 500 Index, with the balance coming from capital appreciation.
“Domestically as well as internationally, dividend-based investment strategies have historically participated in the majority of market upswings, while offering a degree of downside protection in turbulent times. Even when stock prices are declining, dividends may provide a stable source of income. These qualities make dividend funds particularly attractive in the current environment, with yields at historically low levels and uncertainty surrounding the direction of the global economy.”
Competing dividend ETFs each approach the market in a somewhat different way, the company concluded, due largely to differences in index construction. It says the guide will help investors find the best dividend ETFs for their portfolios.