Investors who are interested in adding income to their portfolio often first look to the fixed income market and then to dividend-paying equities. As you probably know, in recent years, U.S. corporations have found themselves with large amounts of cash and have looked at dividend payouts and buybacks as go-to methods for allocating the extra capital.
While companies that pay dividends are often looked to as relatively more stable than non-paying companies – those that have a prolonged track record of increasing dividends are looked upon even more favorably and are considered to be the cream of the crop. In this article, we'll look at the charts that are used to track the niche group of companies known as the dividend achievers – which are those that have increased dividend payout for the past 10 or more consecutive years – and try to determine how traders will focus their efforts over the weeks and months ahead.
Vanguard Dividend Appreciation ETF (VIG)
One method for gaining exposure to the group of companies known as dividend achievers is to invest in an exchange-traded product such as the Vanguard Dividend Appreciation ETF (VIG). Fundamentally, the fund follows a passively managed, full replication approach and seeks to track the performance of the NASDAQ US Dividend Achievers Select Index.
Taking a look at the chart below, you can see that the fund has been trading within a defined channel pattern for most of 2019, and there seems to be little reason to expect this theme to reverse any time soon. The bullish crossover between the 50-day and 200-day moving average back in March is also a technical signal of the beginning of a long-term uptrend. Based on this chart, traders will likely maintain a bullish outlook on the group of dividend achievers until the price action breaks below the lower support levels.
Visa Inc. (V)
With the fundamental shift toward digital money and the dominance of transactions done via credit cards, Visa Inc. (V) is one of the best-positioned companies to take advantage of the trend. Taking a look at the chart below, you can see that, as one of the top holdings of the VIG ETF, the channel pattern looks very similar.
The strong macro trend that supports Visa's business combined with the increasing divided make this one company that many investors will be adding to their watch lists over the coming months. More specifically, based on the pattern, active traders will likely maintain a bullish outlook until the price breaks below the support of the lower trendline, which is currently near $166.
The Proctor & Gamble Company (PG)
Another defined channel pattern to watch has formed on one of the most popular dividend achievers, The Proctor & Gamble Company (PG). As you can see below, the defined trading range has provided followers of technical analysis clear buy and sell signals for most of 2019, and there is little reason to expect this to change any time soon.
Bulls will likely look to buy as close to the 50-day moving average as possible to maximize the risk-to-reward ratio. From a risk management perspective, stop-loss orders will most likely be set below either the 50-day moving average (blue line) or the lower trendline, depending on risk tolerance.
The Bottom Line
Dividend-paying companies are often a stable part of an investor's portfolio. Those companies that have been increasing payouts for more than a decade deserve a spot due to the strong nature of their underlying businesses. Based on the patterns discussed above, there is little reason to expect a sudden reversal in the dominant uptrend.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.