Amid heightened uncertainty about the global economy and rising interest rates, investors have become defensive and are seeking safe and stable investments.
Dividend-focused products offer safety in the form of payouts and stability in the form of mature companies that are less volatile to the large swings in stock prices. Dividend-paying securities can be major sources of consistent income for investors when returns from equity markets are at risk. Further, these products have proven outperformers over the long term (read: Dividend ETFs Explained: What Investors Need to Know).
While there are plenty of options in the dividend ETF world, honing in on the ‘dividend aristocrats’ could be the most beneficial way to ride out the current market volatility resulting from geopolitical concerns. Further, the yields on government bonds have fallen to lower levels despite the Fed scaling back its stimulus. The lower yields have compelled investors to look for other cash generating streams.
Why Dividend Aristocrats?
Dividend aristocrats are the blue-chip dividend-paying companies, which have a long history of raising dividend payments year-over-year. These generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis. Additionally, aristocrats tend to skew the portfolio to less volatile sectors and mature companies (see: all Large Cap ETFs here).
Investors should note that the dividend aristocrat funds offer more dividend growth opportunities when compared to other products in the space but might not necessarily have the highest yields.
As a result, these products provide a nice combination of annual dividend growth and capital appreciation opportunity, and are mainly suitable for risk adverse long-term investors. For them, we have highlighted some ETFs that could be excellent choices regardless of stock market directions.
SPDR S&P Dividend ETF SDY
SDY is one of the most popular and liquid ETFs in the dividend space with AUM of $15.51 billion and average daily volume of more than 827,000 shares. This fund provides exposure to U.S. stocks that have been consistently increasing their dividends every year for at least 25 consecutive years. This can be done by tracking the S&P High Yield Dividend Aristocrats Index (read: Safe Haven ETFs to Evade Geopolitical Tensions).
The product is widely spread out across a number of securities, as none hold more than 1.70% of total assets. Though the fund is slightly skewed toward the consumer defensive sector with 16.23%, industrials, financial services, consumer cyclical, and utlities make up for a nice mix in the portfolio with double-digit allocations. The fund charges 35 bps in fees per year and yields 2.22% in 30-day SEC. It has added 3.48% in value so far this year, and has a #3 (Hold) on the Zacks ETF Rank with a Medium risk outlook.
ProShares S&P 500 Aristocrats ETF NOBL
NOBL is a newly launched fund that has amassed an impressive $2.99 billion in its asset base in roughly two years. Expense ratio is 0.35% while average daily volume rests at 351,213 shares. The product provides exposure to the companies that raised dividend payments annually for at least 25 years by tracking the S&P 500 Dividend Aristocrats.
The fund is widely diversified across various securities, as each account for less than 2.1% share. From a sector look, the biggest share of its holdings fall into consumer defensive, followed by industrials (19%), healthcare (14%), financial services (9.9%) and basic materials (9.7%). NOBL is up 6.52% year-to-date and has 30-day SEC yield of 2.03%. The fund is a #3 (Hold) on the Zacks ETF Rank with a Medium risk outlook (read: 3 Low-Risk ETFs Beating SPY This Year).
Vanguard Dividend Appreciation ETF VIG
VIG is the largest ETF in the dividend space with AUM of $23.90 billion and average daily volume of about 759,660 shares. The fund follows the NASDAQ US Dividend Achievers Select Index, which is composed of high quality stocks that have a record of increasing dividends over the past decade. It holds 163 securities in its basket.
Here again, the fund has diverse exposure across securities, with each holding no more than 4.3% of total assets. However, it has a definite tilt toward industrial at 28.4%, while consumer goods and healthcare round off the top three. The ETF has an expense ratio of 0.09%, while its 30-day SEC yield comes at 2.06%. The fund has added almost 7.27% year-to-date and is a #3 (Hold) on the Zacks ETF Rank with a Medium risk outlook.
SPDR S&P Global Dividend ETF WDIV
For investors seeking global exposure, WDIV seems like an intriguing pick. This fund follows the S&P Global Dividend Aristocrats Index, which measures the performance of the companies that have raised dividends for at least 10 years consecutively. WDIV has amassed $137.76 million in AUM and charges quite a high annual fee of 40 bps. Volume is light at about 13,800 shares a day on average (read: 3 Unbeatable Dividend ETF All-Stars for Your Portfolio).
Holding 101 stocks, WDIV also provides a nice balance across each component with none holding more than 1.8% share. Financials and utilities take the top two spots at 23% and 16.8%, while real estate and consumer cyclical make up for the next two spots with a 13% share each. The fund has gained roughly 6.4% so far this year and is a #3 (Hold) on the Zacks ETF Rank with Low risk outlook. The 30-day SEC yield is higher at 3.96% compared to the other three above-mentioned products.
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SPDR-SP DIV ETF (SDY): ETF Research Reports
VANGD-DIV APPRC (VIG): ETF Research Reports
PRO-SP5 ARISTOC (NOBL): ETF Research Reports
SPDR-SP GBL DIV (WDIV): ETF Research Reports
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