Dividend ETFs to Combat Rising Fed's Stimulus Tapering Woes
Dividend aristocrats are likely to perform well and are attractive investment options for an impressive finish to 2021, especially amid the rapidly-sp...
Investors fear the chances of Federal Reserve tapering the fiscal stimulus support. The market participants are now eagerly eyeing the Jackson Hole symposium for further visibility on the Fed’s possible timeline for taking action, per a CNBC report. The withdrawal of the stimulus support is expected to slowdown the U.S. economic recovery achieved so far from the pandemic-led slump amid the rising new coronavirus cases from the highly-contagious delta variant.
In this regard, Craig Johnson, technical market strategist at Piper Sandler, has noted that “We suspect investor conviction is being challenged by the potential for upcoming monetary policy changes, shifting growth vs. value rotations, and a rising trajectory of new coronavirus cases,” as mentioned in a CNBC article.
Notably, the central bank recently published its minutes from the July meeting and hinted about chances of gradually withdrawing its monthly bond purchases of $120 billion this year. The minutes noted that “Looking ahead, most participants noted that, provided that the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year,” per a CNBC article.
Going on, U.S. retail sales declined 1.1% sequentially in July 2021, following a revised 0.7% gain in June and compared with the market consensus of a 0.3% decline, due to a fall in auto purchases and a resurgence in COVID-19 cases that hurt consumer demand.
Also, the increasing concerns about the surging coronavirus cases due to the delta variant continue to dampen U.S. consumer sentiments. The metric surprisingly slid to a pandemic-era low level in early August when compared to a reading of 70.8 recorded in April 2020. The University of Michigan’s preliminary consumer sentiment index fell to 70.2 in August from 81.2 last month.
Moreover, the world’s largest economy is seeing more than 150,000 daily number of coronavirus cases registered in August, reflecting a sharp spike from less than 10,000 in early July as reported in a Reuters article.
Why Invest in Dividend Aristocrat ETFs?
Dividend aristocrats are blue-chip dividend-paying companies with a long history of increasing dividend payments year over year. Moreover, dividend aristocrat funds provide investors with dividend growth opportunities in comparison to other products in the space but might not necessarily have the highest yields.
‘Dividend aristocrats’ or ‘dividend growers’ are mostly deemed to be the smartest way to deal with market turmoil. Notably, the inclination toward dividend investing has been rising due to easing monetary policy on the global front, and market uncertainty triggered by the pandemic and deceleration in global growth. The demand for these funds is mostly driven by their characteristic of being the major source of consistent income for investors when returns from the equity markets are uncertain.
These products also form a strong portfolio, with a higher scope of capital appreciation as against simple dividend-paying stocks or those with high yields. As a result, these products deliver a nice combination of annual dividend growth and capital-appreciation opportunity and are mostly good for risk adverse long-term investors.
Against this backdrop, let’s take a look at some ETFs that investors can consider:
Vanguard Dividend Appreciation ETF VIG
This is the largest and the most popular ETF in the dividend space, with AUM of $62.87 billion. The fund follows the NASDAQ US Dividend Achievers Select Index, composed of high-quality stocks, with a record of raising dividends every year. It charges 6 basis points (bps) in annual fees (read: ETF Investing Areas to Consider for August).
SPDR S&P Dividend ETF SDY
This fund seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P High Yield Dividend Aristocrats Index. The index screens companies that have consistently increased their dividend for at least 20 consecutive years and weights the stocks by yield. The fund has AUM of $19.68 billion. It charges 35 bps in fees per year (read: ETF Strategies to Combat Delta Variant Woes & Market Uncertainty).
iShares Select Dividend ETF DVY
The fund provides exposure to broad-cap U.S. companies with a consistent history of dividends and tracks the Dow Jones U.S. Select Dividend Index. The fund has AUM of $18.16 billion. It charges 39 bps in fees per year.
ProShares S&P 500 Dividend Aristocrats ETF NOBL
This fund seeks investment results, before fees and expenses that track the performance of the S&P 500 Dividend Aristocrats Index. It is the only ETF focusing exclusively on the S&P 500 Dividend Aristocrats — high-quality companies that have not just paid dividends but raised them for at least 25 consecutive years, with most doing so for 40 years or more. NOBL has amassed $8.98 billion in its asset base. It has an expense ratio of 0.35%.
iShares Core Dividend Growth ETF DGRO
This fund provides exposure to companies boasting a history of sustained dividend growth by tracking the Morningstar US Dividend Growth Index. The fund has AUM of $20.35 billion. It charges 8 bps in fees per year (read: 401(k) Balances at All-Time Highs: 6 ETFs to Buy).
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SPDR S&P Dividend ETF (SDY): ETF Research Reports
Vanguard Dividend Appreciation ETF (VIG): ETF Research Reports
ProShares S&P 500 Dividend Aristocrats ETF (NOBL): ETF Research Reports
iShares Select Dividend ETF (DVY): ETF Research Reports
iShares Core Dividend Growth ETF (DGRO): ETF Research Reports
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