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Dividend Growth ETFs to Play as Coronavirus Wreaks Havoc

Sweta Jaiswal, FRM

Coronavirus has grown into a global scare, with 5,974 confirmed cases in China along with 132 people dead as of Jan 28. The outbreak has also rattled markets, dragging all major U.S. indices down from record highs. 

Going by past epidemics, analysts believe that markets will lose more. Per Citi’s head of U.S. equity strategy, the S&P 500 lost between 6% and 13% during the severe acute respiratory syndrome or SARS epidemic in 2003 to the Ebola scare six years back. Health experts have started comparing the coronavirus outbreak with SARS, which wreaked havoc for 38 trading days and led to a decline in all 11 S&P 500 sectors. Moreover, the number of cases registered during the SARS epidemic have been surpassed by the coronavirus eruption (read: Global Low-Volatility ETFs for Turbulent Times).

The outbreak might have adverse impact on companies with huge exposure to China. For instance, technology giant Apple (AAPL) is projecting a slowdown in iPhone production (per a Nikkei Asian Review report). This is because China has been a major manufacturer and supplier for many technology companies in the United States. Meanwhile, major retailers, restaurants and hotels in the United States, which earn a large portion of revenues from operations in China, are expected to suffer huge blows. In fact, out of its 4300 outlets in China, Starbucks (SBUX) has closed 2000 (read: Will Consumer Discretionary ETFs Suffer the Coronavirus Blow?).

Dividend Growth ETFs for a Healthy Portfolio

The appeal of dividend ETFs has been rising in the face of waning yields, easing monetary policy on the global front and market uncertainty triggered by geopolitical worries and deceleration in global growth. This is because dividend-paying securities are major sources of consistent income for investors when returns from equity markets are uncertain.

Although there are plenty of options in the dividend ETF world, ‘dividend aristocrats’ or ‘dividend growers’ could be the smartest way to deal with the current market turmoil. Here are a few ETFs to consider:

Vanguard Dividend Appreciation ETF VIG

This is the largest and most popular ETF in the dividend space, with AUM of $42.57 billion. The fund follows the NASDAQ US Dividend Achievers Select Index, which is composed of high-quality stocks with a record of raising dividends every year. It holds 182 securities in the basket and charges 6 basis points (bps) in annual fees. VIG has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: IMF Cuts Global Growth Outlook: 5 ETF Areas to Bet On).

ProShares S&P 500 Aristocrats ETF NOBL

This product provides exposure to high-quality companies that have not just paid dividends but have hiked the same for at least 25 consecutive years, with most doing so for 40 years or more. It follows the S&P 500 Dividend Aristocrats Index, holding 57 securities in its basket. NOBL has amassed $6.57 billion in its asset base. It has an expense ratio of 0.35% and a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: 7 Dividend ETFs That Offer Growth in 2020).

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. Holding 478 stocks in its basket, the fund has AUM of $10.54 billion. It charges 8 bps in fees per year and has a Zacks ETF Rank of 2 (Buy) with a Medium risk outlook (read: Dividend Growth ETFs for Long Term Investors).

First Trust NASDAQ Rising Dividend Achievers ETF RDVY

This fund lends exposure to a diversified portfolio of 51 companies with a stellar dividend payout history. It tracks the NASDAQ US Rising Dividend Achievers Index, charging investors 50 bps in annual fees. The ETF has accumulated $1.19 billion in its asset base. It has a Zacks ETF Rank of 2 with a Medium risk outlook.

Invesco Dividend Achievers ETF PFM

With $320 million, this fund offers exposure to 258 companies that have raised dividends for 10 or more straight fiscal years. It has expense ratio of 0.54%. PFM is a Zacks #3 Ranked ETF with a Medium risk outlook.

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