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5 Dividend ETFs to Pick Amid Fed Rate Cut Talks

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The Fed meeting, which is going to start today, is expected to end in a dovish stance. At the current level, according to CME FedWatch tool, there is a 75% chance of a 25-bp rate cut in this meeting. For the September meeting, there is a 56.7% probability of a 50-bp rate cut, followed by 27.4% likelihood of a 25-bp rate cut and 15.9% probability of a 75-bp-rate-cut scenario.

The bets over lower rates increased a bit in recent trading as U.S. GDP growth slowed in the second quarter hurt by softer exports and a smaller inventory build. The U.S. economy grew an annualized 2.1% in the second quarter of 2019, following a 3.1% uptick in the previous three-month period. Needless to say, Needless to say, tariffs and a global slowdown weighed on the U.S. economy (read: US Q2 GDP Growth Slows But Beats Estimates: ETF Areas to Win).

The IMF also slashed its global growth projections lately, calling for 3.2% and 3.5% expansion in 2019 and 2020, respectively. Both figures marked a reduction of 0.1 percentage points from the organization’s April projections. A rate of 3.3% or lower would mark the lowest growth rate since 2009.  Advanced economies are likely to register steady decline in growth rates from 2018 (up 2.2%). The bloc is forecast to expand 1.9% this year and 1.7% the next. Such low rates demand easy money polices globally.

Why to Buy Dividend ETFs?

The accommodative Fed should do good for stocks as there will be more months of cheap money inflows. Among stocks, income-producing securities might do even better for investors in search of solid and steady current income. The past decade was especially favorable for dividend ETFs as central banks including the Fed has been ultra-dovish (read: 6 Dividend ETFs That Beat S&P 500 in the 10-Year Bull Run).

Research shows that dividend stocks often beat their non-dividend paying counterparts over longer periods. According to Chicago-based Greenrock Research, a portfolio with the top 20% of the S&P 500 companies ranked by dividend yield and weighted by market capitalization, outperformed the overall S&P 500 by 2.13 percentage points annually from 1995 to 2018.

Against this backdrop, below we highlight a few dividend ETFs that are to register an outperformance. 

iShares Core High Dividend ETF (HDV - Free Report)

The underlying Morningstar Dividend Yield Focus Index offers exposure to high quality U.S. domiciled companies that have had strong financial health and an ability to sustain above average dividend payouts. The fund yields 3.22% annually (read: ETFs to Grab Amid Increased Odds for Fed Rate Cut).

O'Shares FTSE US Quality Dividend ETF (OUSA - Free Report)

The underlying FTSE US Qual / Vol / Yield Factor 5% Capped Index measures the performance of publicly-listed, large-capitalization and mid-capitalization dividend-paying issuers in the United States. The fund yields 2.53% annually.

Vanguard High Dividend Yield ETF (VYM - Free Report)

The underlying FTSE High Dividend Yield Index, which is consists of common stocks of companies that pay out dividends that generally are higher than average. The fund yields about 3.01% annually.

Global X SuperDividend U.S. ETF (DIV - Free Report)

The underlying INDXX SuperDividend US Low Volatility Index tracks the performance of 50 equally weighted common stocks, MLPs & REITs that rank among the highest dividend-yielding equity securities in the United States. It yields 7.35% annually.

Invesco S&P SmallCap High Dividend Low Volatility ETF (XSHD - Free Report)

The underlying S&P SmallCap 600 Low Volatility High Dividend Index comprises 60 securities in the S&P SmallCap 600 Index that have historically provided high dividend yields with lower volatility over the past 12 months. The fund yields about 4.89% annually.

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