5 Dividend Aristocrat ETFs in Focus for a Stable Finish to Q4
Dividend aristocrats are likely to perform well and are attractive investment options for an impressive finish to 2021.
Market participants are having a tough time as the mood on Wall Street seems dull and volatile amid inflationary pressure and the Fed’s tapering concerns. The recently released minutes from the Federal Open Market Committee’s September meeting have highlighted that the Fed might begin tapering the fiscal stimulus support program from mid-November (according to a CNBC article).
The central bank is expected to roll back the month-end bond purchases by cutting $10 billion out of $80 billion a month in Treasury’s and $5 billion from $40 billion a month in mortgage-backed securities (per a CNBC article). If everything goes well, the Federal Reserve expects to finish off purchases by mid-2022.
Investors seem continuously worried about the soaring inflation levels. Per the latest Labor Department report, the Consumer Price Index in September rose 5.4% year over year compared to the Dow Jones estimate of a 5.3% rise, per a CNBC article. The metric came in at the highest level since January 1991. It also increased 0.4% for the month, surpassing the 0.3% Dow Jones estimate. The soaring food and energy prices might be primarily responsible for the higher inflation levels.
In another disappointing development, Goldman Sachs (GS) slashed its U.S. economic growth prediction. According to a CNBC article, the investment bank expects economic growth to come in at 4% from 4.4% in 2022. It has also revised its 2021 estimate downward to 5.6% from 5.7%. The firm cited various factors like the diminishing fiscal stimulus support from Congress and the slow pace of recovery in consumer spending for its decision.
The latest jobs report for September turned out to be unimpressive as the U.S. economy has added the lowest number of jobs so far this year. Notably, 194,000 positions were added in September, missing the forecast of 500,000. Nonfarm employment has risen 17.4 million since April 2020 but slid 3.3% from its pre-pandemic level in February 2020.
Investors may have to handle certain issues like inflationary pressure, supply-chain challenges, possibilities of the Fed tapering the fiscal stimulus, China’s Evergrande crisis and concerns over a debt-ceiling breach in October. These factors can also keep the stock market volatile.
Why Consider 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 $61.55 billion. The fund follows the S&P U.S. Dividend Growers Index. It charges 6 basis points (bps) in annual fees (read: Focus on These ETF Areas to Combat Market Uncertainties).
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 $19.23 billion. It charges 35 bps in fees per year (read: Market Outlook & ETF Ideas for the Fourth Quarter).
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 $18.37 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 $9.36 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 $20.11 billion. It charges 8 bps in fees per year (read: 5 Winning ETF Ideas for the Fourth Quarter).
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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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