U.S. Markets close in 2 hrs 59 mins

An Investors' Guide to Dividend Aristocrat ETFs

Sweta Killa
We have highlighted ETFs that should benefit from a strengthening dollar and the ones that will lose.

Volatility and uncertainty surrounding global economic growth and rising yields have made investors defensive. This has increased the appeal for products that provide safety and stability in a rocky market.

Dividend-focused products offer both 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. The dividend-paying securities are the major sources of consistent income for investors when returns from equity markets are at risk. Further, these products are proven outperformers over the long term (read: 5 Dividend ETFs Worth Buying Now).

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 political and geopolitical worries.

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.

Investors should note that the dividend aristocrat funds offer more dividend growth opportunities when compared to the other products in the space but might not necessarily have the highest yields. Further, these products lead to a healthy portfolio with a greater scope of capital appreciation as opposed to simple dividend paying stocks or those with high 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 popular ETFs that could be excellent choices:

Vanguard Dividend Appreciation ETF VIG

This is the largest and most-popular ETF in the dividend space with AUM of $28.9 billion and average daily volume of about 596,000 shares. The fund follows the NASDAQ US Dividend Achievers Select Index, which is composed of high quality stocks that have a record of raising dividend every year. It holds 182 securities in the basket, with none accounting for more than 4.5% share. The fund charges 8 bps in annual fees and has a Zacks ETF Rank #3 (Hold), with a Medium risk outlook (read: 4 ETF Picks for October).

iShares Select Dividend ETF DVY

This fund provides exposure to the companies with a consistent 5-year history of dividend payments. It follows the Dow Jones U.S. Select Dividend Index and holds 98 securities in its basket with each accounting for less than 2.6% of assets. The ETF has AUM of $16.7 billion and average daily volume of more than 489,000 shares. It charges 39 bps in fees per year from investors and has a Zacks ETF Rank #3, with a Medium risk outlook.

SPDR S&P Dividend ETF SDY

With AUM of $15.4 billion and average daily volume of 377,000 shares, this fund provides a well-diversified exposure to 111 U.S. stocks that have been consistently increasing their dividends every year for at least 20 years. This can be done by tracking the S&P High Yield Dividend Aristocrats Index. Each firm accounts for less than 2.5% of assets. The fund charges 35 bps in fees and has a Zacks ETF Rank #3, with a Medium risk outlook (read:  Large-Cap ETF Hits New 52-Week High).
   
Schwab U.S. Dividend Equity ETF SCHD

With AUM of $7.8 billion, this product offers exposure to 108 high-dividend yielding U.S. companies that have a record of consistent dividend payments supported by fundamental strength based on financial ratios and ample liquidity. This can be easily done by tracking the Dow Jones U.S. Dividend 100 Index. The fund is well spread across components, with none holding more than 4.8% of assets. It charges 7 bps in annual fees and trades in solid volume of around 758,000 shares a day. It has a Zacks ETF Rank #2 (Buy), with a Medium risk outlook.

iShares Core Dividend Growth ETF DGRO

This fund provides exposure to companies having a history of consistently growing dividends by tracking the Morningstar US Dividend Growth Index. It holds 449 stocks in its basket with each accounting for less than 3.1% share. The fund has accumulated $4.3 billion in its asset base and trades in solid volumes of about 548,000 shares. It charges 8 bps in fess per year and has a Zacks ETF Rank #3 with a Medium risk outlook (read: 4 ETFs to Play Key Events in Q4).

ProShares S&P 500 Aristocrats ETF NOBL

This product provides exposure to companies that raised dividend payments annually for at least 25 years by tracking the S&P 500 Dividend Aristocrats Index. It holds 53 securities in its basket, with each accounting for less than 2.5% share. NOBL has amassed $3.6 billion in its asset base and trades in a volume of around 304,000 shares a day on average. It has an expense ratio of 0.35% and has a Zacks ETF Rank #3, with a Medium risk outlook.

WisdomTree U.S. Quality Dividend Growth Fund DGRW

This fund tracks the WisdomTree U.S. Quality Dividend Growth Index and offers diversified exposure to U.S. dividend-paying stocks with both growth and quality characteristics like long-term earnings growth expectations, and three-year historical averages for return on equity and return on assets. It has gathered $2.3 billion in its asset base and trades in good volume of nearly 163,000 shares per day. The ETF holds 276 securities in its basket, with each accounting for no more than 5.31% share and charges 28 bps in fees per year from investors. It has a Zacks ETF Rank #3, with a Medium risk outlook.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>