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Here's Why Dividend Growth ETFs Make a Smarter Pick Now

Sweta Jaiswal, FRM

The coronavirus pandemic has claimed more than 83,000 lives in the United States so far. Despite this, the U.S. economy has started to reopen in phases. Meanwhile, a top model now projects around 147,000 deaths in the country by August, per a CNN report. Moreover, the White House task force coronavirus expert, Dr. Fauci has cautioned that relaxing stay-at-home restrictions aggressively could result in more "suffering and death", per a BBC News report.

Adding to this, Fed Chairman Jerome Powell’s latest comments have raised concerns over the economic health. He said, “while the economic response has been both timely and appropriately large, it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risks”, per a CNBC article.

Paying a heavy price, Wall Street bled in yesterday’s trading session with Dow Jones Industrial Average Index sliding 2.2%, the S&P 500 losing 1.8% and Nasdaq Composite falling 1.6%.

Notably, the outbreak has caused an unprecedented collapse of economic activities as governments are forced to shut down commerce and implement social distancing measures in an effort to contain the spread of the virus. The job market is also getting disrupted as Americans are consistently filing claims for unemployment benefits. With rising unemployment levels, the spending capacity of consumers is, undoubtedly, getting compromised to a great extent.

Dividend Growth ETFs for a Healthy Portfolio

The appeal of dividend ETFs has been rising in the face of easing monetary policy on the global front, and market uncertainty triggered by the pandemic 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. Investors mostly face difficulty in choosing between high-dividend paying ETFs and divided growth ETFs.

Research has shown that in the shorter run, during turbulent market times, the sustainability of dividends becomes a major criterion as a lot of companies are observed to be cutting or suspending their dividend payouts. Interestingly, a comparison of the median values of the S&P 500 Dividend Aristocrats and the High Dividend Index on a number of fundamental metrics that measure the strength of companies making dividend payouts from December 1991 to April 2020 revealed that the former are comparatively safer. Going on, the S&P 500 Dividend Aristocrats turned out to be having larger market caps, more profitability with higher buybacks, cash on hand and earnings than their high yielding peers.

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 $39.56 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 carries a Zacks ETF Rank #2 (Buy), with a Medium-risk outlook (read: Is Fear for Dividend Cuts Overblown? ETFs to Benefit).

ProShares S&P 500 Dividend 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 64 securities in its basket. NOBL has amassed $5.25 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: Play These Dividend Growth ETFs Amid Coronavirus Crisis).

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 $8.75 billion. It charges 8 bps in fees per year and has a Zacks ETF Rank of 2, with a Medium-risk outlook (read: Stocks Look Set for a Rally: Top-Ranked ETFs to Buy).

First Trust 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 $1.01 billion in its asset base. It carries a Zacks ETF Rank of 3, with a Medium-risk outlook.

Invesco Dividend Achievers ETF PFM

With $298.5 million, this fund offers exposure to 301 companies that have raised dividends for 10 or more straight fiscal years. It has an expense ratio of 0.54%. PFM is a Zacks #3 Ranked ETF, with a Medium-risk outlook.

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iShares Core Dividend Growth ETF (DGRO): ETF Research Reports
 
Vanguard Dividend Appreciation ETF (VIG): ETF Research Reports
 
ProShares SP 500 Dividend Aristocrats ETF (NOBL): ETF Research Reports
 
Invesco Dividend Achievers ETF (PFM): ETF Research Reports
 
First Trust Rising Dividend Achievers ETF (RDVY): ETF Research Reports
 
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