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Rate Hike or Not, Dividend ETFs Are Star Investments
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If there’s any equity ETF segment that almost always comes to investors’ rescue, then that is dividend. This year too, the segment was the silver lining amid clouds of uncertainty.
The Fed’s rate hike worries, oil price volatility, political uncertainty at the global level, mounting doubts over the materialization of Trump’s promised measures and the latest tech sector rout kept demand of dividend investing in fine fettle (read: What Makes This Global Dividend Income ETF So Popular).
Also, a wave of easy money polices across the globe, especially negative interest rates in a number of economies including the Euro zone and Japan, has kept the appeal for dividend investing alive. Though the Fed is on a policy tightening mode, the yield on benchmark U.S. Treasury is still at a subdued level.
As of June 13 2017, when a quarter-point Fed rate hike bet was rife, the yield on the benchmark 10-year Treasury note was 2.21%. This was probably because a 25-bps hike in rates would not be enough to push up bond yields markedly. Plus, inflation is still at a moderated level which is likely to hold the Fed back from being too aggressive on the policy tightening issue in the days to come.
Even if U.S. Treasury bond yields shoot up, there are plenty of dividend ETFs for investors that offer benchmark-beating yields. After all, high-dividend ETFs provide investors with avenues to make up for capital losses, if that happens at all.
Apart from the high-yield ones, there is a number of dividend aristocrat ETFs at investors’ discretion. These stocks have a long history of raising dividend payments continuously year after year, thereby offering quality exposure in a volatile market environment (read: Dividend ETFs Explained: What Investors Need to Know).
So, it is better to bet either on relatively safe dividend products with stronger yields that follows unique investment objectives and hone in on value, while offering smart yields or dividend ETFs that promise continued growth. Both ways, investors can beat a volatile environment like the kind we are witnessing now.
In that vein, we highlight a few ETFs that may entice you at the current level. These funds can make you rich even in the rest of 2017 if Trump’s administration doesn’t match expectations of the market, the OPEC deal fails to bear fruit or Fed-related uncertainty prevails (read: Inside New Dividend and Large-Cap Growth ESG ETFs).
WisdomTree U.S. Quality Dividend Growth Fund (DGRW - Free Report)
The underlying index of the fund consists of dividend-paying stocks with growth characteristics. The fund charges 28 bps in fees and yields 2.75% annually (as of June 13, 2017).
The fund offers exposure to the largest U.S. companies that, based on their DIVCON ratings, have the highest probability of increasing their dividends in the next 12 months. Though LEAD is not a great investment from the yield perspective, it can prove to be a quality bet.
This is yet another low volatile bet. The index is designed to reflect the performance of high quality U.S. Large and Mid-Cap equities exhibiting relatively low volatility and high dividend yields. It yields about 2.29% annually.
If investors are too worried about the rising rate momentum, investors can look at this fund. The fund looks to track fixed-rate investment grade preferred issues (BBB- or higher) from U.S. listed preferred stocks and maintains an allocation of 75% to cumulative preferred. The fund yields 5.35% annually and charges 47 bps in fees.
This is another bet for those who expect a rising rate spell. Financial stocks perform better in a rising rate scenario. Plus, the fund has an extremely high yield of 8.11% annually.
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Rate Hike or Not, Dividend ETFs Are Star Investments
If there’s any equity ETF segment that almost always comes to investors’ rescue, then that is dividend. This year too, the segment was the silver lining amid clouds of uncertainty.
The Fed’s rate hike worries, oil price volatility, political uncertainty at the global level, mounting doubts over the materialization of Trump’s promised measures and the latest tech sector rout kept demand of dividend investing in fine fettle (read: What Makes This Global Dividend Income ETF So Popular).
Also, a wave of easy money polices across the globe, especially negative interest rates in a number of economies including the Euro zone and Japan, has kept the appeal for dividend investing alive. Though the Fed is on a policy tightening mode, the yield on benchmark U.S. Treasury is still at a subdued level.
As of June 13 2017, when a quarter-point Fed rate hike bet was rife, the yield on the benchmark 10-year Treasury note was 2.21%. This was probably because a 25-bps hike in rates would not be enough to push up bond yields markedly. Plus, inflation is still at a moderated level which is likely to hold the Fed back from being too aggressive on the policy tightening issue in the days to come.
Even if U.S. Treasury bond yields shoot up, there are plenty of dividend ETFs for investors that offer benchmark-beating yields. After all, high-dividend ETFs provide investors with avenues to make up for capital losses, if that happens at all.
Apart from the high-yield ones, there is a number of dividend aristocrat ETFs at investors’ discretion. These stocks have a long history of raising dividend payments continuously year after year, thereby offering quality exposure in a volatile market environment (read: Dividend ETFs Explained: What Investors Need to Know).
So, it is better to bet either on relatively safe dividend products with stronger yields that follows unique investment objectives and hone in on value, while offering smart yields or dividend ETFs that promise continued growth. Both ways, investors can beat a volatile environment like the kind we are witnessing now.
In that vein, we highlight a few ETFs that may entice you at the current level. These funds can make you rich even in the rest of 2017 if Trump’s administration doesn’t match expectations of the market, the OPEC deal fails to bear fruit or Fed-related uncertainty prevails (read: Inside New Dividend and Large-Cap Growth ESG ETFs).
WisdomTree U.S. Quality Dividend Growth Fund (DGRW - Free Report)
The underlying index of the fund consists of dividend-paying stocks with growth characteristics. The fund charges 28 bps in fees and yields 2.75% annually (as of June 13, 2017).
Reality Shares Divcon Leaders Dividend ETF (LEAD - Free Report)
The fund offers exposure to the largest U.S. companies that, based on their DIVCON ratings, have the highest probability of increasing their dividends in the next 12 months. Though LEAD is not a great investment from the yield perspective, it can prove to be a quality bet.
O'Shares FTSE US Quality Dividend ETF (OUSA - Free Report)
This is yet another low volatile bet. The index is designed to reflect the performance of high quality U.S. Large and Mid-Cap equities exhibiting relatively low volatility and high dividend yields. It yields about 2.29% annually.
Elkhorn S&P High Quality Preferred (EPRF - Free Report)
If investors are too worried about the rising rate momentum, investors can look at this fund. The fund looks to track fixed-rate investment grade preferred issues (BBB- or higher) from U.S. listed preferred stocks and maintains an allocation of 75% to cumulative preferred. The fund yields 5.35% annually and charges 47 bps in fees.
PowerShares KBW High Dividend Yield Financial Portfolio ETF (KBWD - Free Report)
This is another bet for those who expect a rising rate spell. Financial stocks perform better in a rising rate scenario. Plus, the fund has an extremely high yield of 8.11% annually.
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 >>