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Bet on Dividend ETFs to Ride Out Market Uncertainties

Dividend aristocrats are likely to perform well and are attractive investment options for an impressive finish to 2021, especially at a time when the...

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This story originally appeared on Zacks

The month of September has been dull so far for the Wall Street. Considering the period being historically weak, all three major indices are negative for the present month. In fact, the Dow Jones Industrial Average witnessed three consecutive weeks of losses for the first time since September 2020.

- Zacks

Investors keep a close watch on the minutes from the Federal Reserve’s two-day policy meeting that will begin Sep 21. It is being speculated that the rising inflation levels may build more pressure on the Fed to tighten its monetary policies. They are concerned about the Federal Reserve’s chances of tapering the fiscal stimulus support, which includes the $120 billion a month bond-buying program. The withdrawal of the stimulus package might slow down the U.S. economic recovery achieved so far from the pandemic-led slump.

Several economic data releases are also weighing on investors’ minds. The U.S. economy added only 235,000 jobs in August 2021 (the lowest in seven months). The metric was far behind the forecast of 750,000 as the surge in COVID-19 infection prevented companies from hiring and workers from actively looking for a job. Consumer confidence in the United States slipped to a six-month low in August.

Raymond James’ chief investment officer Larry Adam noted that “Factors to build a ‘wall of worry’ are present (i.e., China, supply chain issues, Fed policy, debt ceiling, infrastructure/tax bill), though markets are not too disturbed for now. Normal pullbacks and volatility are to be expected, and we would use these periods as opportunities,” per a CNBC article.

President Joe Biden outlined a very effective plan to increase the vaccination rate and control the coronavirus outbreak. He made it mandatory for the federal employees to get the COVID-19 vaccination, per a CNBC article. The Biden government will also issue guidelines to the Labor Department for imposing vaccine mandates on the employers with more than 100 employees or run weekly tests.

The latest retail sales data pleasantly surprised investors. The metric rose 0.7% sequentially in August 2021 against the market expectations of a 0.8% decline, per a CNBC article.

The U.S. consumer sentiment marginally improved despite the growing concerns about the surging coronavirus cases and the rising inflationary levels. The University of Michigan’s preliminary consumer sentiment inched up to 71 in September from 70.3 last month. The metric, however, lagged the market’s forecast of 72 per a Bloomberg’s survey of economists.

Why Invest in Dividend Aristocrat ETFs?

Dividend aristocrats are blue-chip dividend-paying companies with a long track record 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 the smartest way to deal with the market turmoil. The inclination toward dividend investing is rising on account of easing monetary policy on the global front, and the market uncertainty triggered by the pandemic and deceleration in global growth. 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 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 beneficial to risk averse 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 an AUM of $65.99 billion. The fund follows the S&P U.S. Dividend Growers Index. It charges 6 basis points (bps) in annual fees (read: Tax Hike Worries Drive Last Week's Inflows: 5 Hot ETFs).

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 consistently increased their dividend for at least 20 consecutive years. The fund has an AUM of $19.40 billion. It charges 35 bps in fees per year (read: Dividend Aristocrat ETFs Investing Guide).

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 an AUM of $18.31 billion. It charges 38 bps in fees per year (as stated in the prospectus).

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, which are high-quality companies that not just paid out dividends but also raised the same for at least 25 consecutive years with most doing so for 40 years or more. NOBL amassed $8.96 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 an AUM of $21.28 billion. It charges 8 bps in fees per year.



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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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Zacks Investment Research