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Take Shelter in Dividend Aristocrat ETFs as COVID-19 Cases Rise

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Wall Street had a rough time on the last trading day of the holiday-shortened week. Dow Jones Industrial Average index declined by nearly 905 points or 2.5%, marking its weakest performance since October 2020.  The S&P 500 and the Nasdaq Composite indices were also down 2.3% and 2.2%, respectively. Moreover, all three broad market indices were in the red for the last week.

The new omicron strain of coronavirus has brought about a slowdown in the market momentum. It was first detected in South Africa with numerous mutations (more than 30) to the spike protein (as stated in a CNBC article). The omicron variant has now been reported in the U.K., Israel, Belgium, the Netherlands, Germany, Italy, Australia and Hong Kong. Going on, the World Health Organization (WHO) has labeled the variant as a “variant of concern.”

Investors willing to sail through the current market turbulences from the latest COVID-19-variant-related concerns can consider Vanguard Dividend Appreciation ETF (VIG - Free Report) , SPDR S&P Dividend ETF (SDY - Free Report) , iShares Select Dividend ETF (DVY - Free Report) , ProShares S&P 500 Dividend Aristocrats ETF (NOBL - Free Report) and iShares Core Dividend Growth ETF (DGRO - Free Report) .

Commenting on the current situation, Keith Lerner, co-chief investment officer at Truist Advisory Services, has said that “The pandemic and COVID variants remain one of the biggest risks to markets, and are likely to continue to inject volatility over the next year(s). It’s hard to say at this point how lasting or impactful this latest variant will be for markets,” as mentioned in a CNBC article.

The coronavirus outbreak is aggravating in some parts of Europe, largely due to the cold weather conditions. Various measures are being taken to curtail the spread, which might again impact the economic recovery achieved so far from the pandemic-led slump. For instance, a 30-day state of emergency has been declared along with several new restrictions in the Czech Republic. In fact, Austria has imposed at least a 10-day-long national lockdown to fight the resurgence. Considering the current situation, the WHO has issued a warning that Europe and Central Asia could witness another 700,000 COVID-19 deaths by Mar 1, 2022, per a Euronews article.

Why Consider Dividend Aristocrat ETFs?

Dividend aristocrats are blue-chip dividend-paying companies with a long track record of increasing dividend payments year over year. Moreover, dividend aristocrat funds provide investors with dividend growth opportunities compared to other products in the space but might not necessarily have the highest yields.

‘Dividend aristocrats’ or ‘dividend growers’ are mostly deemed the smartest way to deal with market turmoil. The inclination toward dividend investing is rising because of easing monetary policy on the global front and the market uncertainty triggered by the pandemic and deceleration in global growth. Demand for these funds is mainly driven by their characteristic of being the major source of consistent income for investors when returns from the equity markets are uncertain.

These products also form a strong portfolio with a higher scope of capital appreciation against simple dividend-paying stocks or those with high yields. As a result, these products deliver an excellent combination of annual dividend growth and capital-appreciation opportunity and are most beneficial to risk-averse long-term investors.

Against this backdrop, let’s take a look at some ETFs that investors can consider:

Vanguard Dividend Appreciation ETF 

Vanguard Dividend Appreciation ETF is the largest and the most popular ETF in the dividend space, with AUM of $66.83 billion. VIG follows the S&P U.S. Dividend Growers Index. Vanguard Dividend Appreciation ETF charges 6 basis points (bps) in annual fees (read: Focus on These ETF Areas to Combat Market Uncertainties).

SPDR S&P Dividend ETF

SPDR S&P Dividend ETF seeks to provide investment results that before fees and expenses correspond generally to the total return performance of the S&P High Yield Dividend Aristocrats Index. The index screens companies that consistently increased their dividend for at least 20 consecutive years. SDY has AUM of $20.31 billion. SPDR S&P Dividend ETF charges 35 bps in fees per year (read: Market Outlook & ETF Ideas for the Fourth Quarter).

iShares Select Dividend ETF

iShares Select Dividend ETF provides exposure to broad-cap U.S. companies with a consistent history of dividends and tracks the Dow Jones U.S. Select Dividend Index. DVY has AUM of $19.12 billion. iShares Select Dividend ETF charges 38 bps in fees per year (as stated in the prospectus).

ProShares S&P 500 Dividend Aristocrats ETF

ProShares S&P 500 Dividend Aristocrats ETF seeks investment results before fees and expenses that track the performance of the S&P 500 Dividend Aristocrats Index. NOBL is the only ETF focusing exclusively on the S&P 500 Dividend Aristocrats, which are high-quality companies that not just paid out dividends but also raised the same for at least 25 consecutive years, with most doing so for 40 years or more. NOBL amassed $9.53 billion in its asset base. ProShares S&P 500 Dividend Aristocrats ETF has an expense ratio of 0.35%.

iShares Core Dividend Growth ETF

This fund provides exposure to companies boasting a history of sustained dividend growth by tracking the Morningstar US Dividend Growth Index. DGRO has AUM of $21.78 billion. iShares Core Dividend Growth ETF charges 8 bps in fees per year (read: 5 Winning ETF Ideas for the Fourth Quarter).

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