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4 Dividend ETFs to Ride Out Trade War Uncertainty

Sweta Jaiswal, FRM

The trade war scenario has once again intensified with China’s recent retaliation to President Donald Trump’s tariff hikes, proposed in early August. However, the softness in rhetoric of both countries has provided some respite. As a result, some major US indices like the S&P 500 Index was up 1.1% along with a 1.1% rise in the Dow Jones Industrial Average Index and a 1.3% gain in the NASDAQ Composite Index (as of Aug 26) (read: 5 ETF Zones to Take Shelter From Trade War).

Current Trade War Situation

China has announced to impose new tariffs ranging between 5% and 10% on goods worth $75 billion from the United States. The tariffs will be levied beginning Sep 1 on specific items while the rest will be taxed from Dec 15 onward. Moreover, effective Dec 15, China has decided to reinstate a 25% tariff on U.S. automobiles or 5% on auto parts.

Trump has responded by raising tariffs on $550-billion worth of Chinese goods. He increased the existing tariffs to 30% from 25% on $250-billion of Chinese imports effective Oct 1. Moreover, further tariffs planned on $300-billion of Chinese goods will be revised to 15% from 10% in two stages — Sep 1 and Dec 15. Trump also ordered U.S. companies to look at alternative ways to manufacture their products in the United States and close operations in China (read: 5 High-Dividend ETFs Available Under $20).

Analysts’ Take on Trade War Volatility

Some analysts believe that the speed at which ‘attacks and retaliations’ are taking place followed by the decision reversals in this trade brawl might escalate the ambiguity and uncertainty in the global markets. Such periods of high unpredictability and instability keep investors on edge, making it difficult for business houses to plan out a strong and a concrete business strategy and capital expenditures. Moreover, there is no denying the fact that global economic growth is bearing the brunt of the ongoing trade tussle. Investors have been disappointed with sluggish economic growth data coming from the U.K., Germany, Japan and China.

Goldman’s Advice

The leading multinational investment bank and financial services company Goldman Sachs is now advising clients to bet on high-dividend payers, which it states are “trading at their cheapest levels in nearly 40 years relative to stocks with low yields.” The S&P 500 dividends increased 9% in the first and the second quarters of this year, per Goldman Sachs. Moreover, this investment bank rendered a forecast of 3.5% S&P 500 annualized dividend growth in the next decade.

Dividend ETFs to Experience Smooth Sail

Against this backdrop, let’s take a look at some dividend ETFs:

 WisdomTree U.S. Quality Dividend Growth Fund DGRW

This fund seeks to provide exposure to the large, established U.S. companies, providing high dividends by applying quality screens. It has AUM of $2.66 billion and charges a fee of 28 basis points a year. From a sector’s perspective, the fund has high exposure to Information Technology, Industrials and Consumer Staples with 22%, 17.8% and 13.3% allocation, respectively. The fund inched up 1.1% on Aug 26. It has a SEC 30-day yield of 2.41% as of Aug 26.

FlexShares Quality Dividend Defensive Index Fund QDEF 

The fund replicates the price and yield performance, before fees and expenses, of the Northern Trust Quality Dividend Defensive Index. It has AUM of $406.3 million and charges a fee of 37 basis points every year. From a sector’s angle, the fund has solid exposure to Information Technology, Financials and Consumer Discretionary with 22%, 11.9% and 11.3% allocation each. The fund gained 0.8% on Aug 26. It has a SEC Subsidized yield of 2.82% on Jul 31.

WBI Power Factor High Dividend ETF WBIY

The underlying Solactive Power Factor High Dividend Index tracks the performance of 50 U.S.-listed stocks among the large, mid and small-caps that exhibit high dividend yields and strong fundamentals. It has AUM of $89.9 million and charges a fee of 70 basis points per year. From a sector’s viewpoint, the fund has high exposure to Consumer Discretionary, Financial Services and Technology with 30.1%, 20.6% and 12.9% allocation, respectively (as of Jun 30). The fund was nudged up 0.7% on Aug 26. It has a 30-Day SEC yield of 4.53% as of Jul 31 (read: Earn 5% Yields or More With These Dividend ETFs & Stocks).

Schwab US Dividend Equity ETF SCHD

The underlying Dow Jones U.S. Dividend 100 Index is designed to measure the performance of high dividend-yielding stocks issued by U.S. companies with a record of consistently paying out dividends, selected for fundamental strength relative to their peers, based on financial ratios.  It has AUM of $9.49 billion and charges a fee of 6 basis points a year. From a sector’s end, the fund has strong exposure to Consumer Staples, Information Technology and Industrials with 21%, 18% and 16.6% allocation, respectively (as of Jun 30). The fund rose 1% on Aug 26. It has a 30-Day SEC yield of 3.42% as of Aug 23 (read: Red Hot Dividend ETFs of 2019).

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WisdomTree U.S. Quality Dividend Growth Fund (DGRW): ETF Research Reports
 
WBI Power Factor High Dividend ETF (WBIY): ETF Research Reports
 
FlexShares Quality Dividend Defensive Index Fund (QDEF): ETF Research Reports
 
Schwab U.S. Dividend Equity ETF (SCHD): ETF Research Reports
 
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