Back to top

Image: Bigstock

Dividend Growth ETFs to the Rescue for Tougher Times Ahead

Read MoreHide Full Article

The coronavirus outbreak continues to aggravate globally. The world has recorded the maximum increase in daily coronavirus cases since the pandemic started, largely due to a second wave in Europe. As a region, the continent is now witnessing more daily infections than the United States, Brazil and India, per a CNN report. Per the same report, aggravating outbreaks in the European countries, such as France, Austria, Romania and the Czech Republic are leading the rise in the count.

The uncertainty surrounding the introduction of a coronavirus vaccine is making investors more jittery. Going by the sources, Trump’s administration is believed to be building pressure on getting a vaccine approved before the elections in November. Meanwhile, the FDA expressed intentions of not compromising on the vaccine’s quality, safety and efficacy standards when it comes to its giving its regulatory nod.

In fact, the FDA published new guidelines for the requirements of the much-awaited coronavirus vaccine’s emergency authorization after the advice to the pharmaceutical companies was delayed by the White House review, as sources reported. The new FDA rules require the vaccine developers to submit data reflecting that they followed clinical trial participants for a median of two months after administering their final vaccine injection. They also require companies to file for the respective vaccines’ authorization only after at least five severe cases of COVID-19 being diagnosed in the volunteers who got the placebo. Analysts believe that the new FDA mandates might delay the urgent introduction of a coronavirus vaccine by the U.S. presidential elections.

Moving ahead, this election year could turn out to be the worse period with the coronavirus pandemic intensifying by the day. Meanwhile, following the first of the three presidential debates in Cleveland, things seem to be in favor of Joe Biden.  According to data from Smarkets, Biden’s chances of winning are now pegged at 62% while the odds in favor of Trump are at 38%, per a Yahoo Finance article.

Historically, the stock markets are found to exhibit volatility in the month before the elections. Also, investors generally opt for cash or cash-like investments instead of risky assets like equities while evaluating the economic and financial impact of the election results. Moreover, market participants are desperately waiting for the introduction of additional U.S. fiscal stimulus package, which shall be an absolute necessity for the economic recovery.

Dividend Growth ETFs to the Rescue

The appeal of the dividend ETFs has been rising owing to easing monetary policy on the global front and market uncertainty triggered by the pandemic and deceleration in global growth. This is because dividend-paying securities are the major sources of consistent income for investors when returns from the equity markets are uncertain.

Although there are plenty of options in the dividend ETF world, ‘dividend aristocrats’ or ‘dividend growers’ could be the smartest way to deal with the current market turmoil. Investors mostly face difficulty in choosing between high-dividend paying ETFs and divided growth ETFs.

Research showed that in the near term amid turbulent market times, the sustainability of dividends becomes a major criterion as multiple companies are observed to be cutting or suspending their dividend payouts, per the sources. Here are a few ETFs to consider:

Vanguard Dividend Appreciation ETF (VIG - Free Report)

This is the largest and the most popular ETF in the dividend space with an AUM of $47.26 billion. The fund follows the NASDAQ US Dividend Achievers Select Index, composed of high-quality stocks with a record of raising dividends every year. It charges 6 basis points (bps) in annual fees (read: Defensive ETF Strategies for Q4 Amid Election Uncertainty).

iShares Core Dividend Growth ETF (DGRO - Free Report)

This fund provides exposure to companies boasting a history of sustained dividend growth by tracking the Morningstar US Dividend Growth Index. The fund has AUM of $11.63 billion. It charges 8 bps in fees per year (read: 5 Cheap Dividend ETFs for Safe and Consistent Income).

ProShares S&P 500 Dividend Aristocrats ETF (NOBL - Free Report)

This product provides an exposure to those high-quality companies that have not just paid dividends but also hiked the same for at least 25 consecutive years with most doing so for 40 years or more. It follows the S&P 500 Dividend Aristocrats Index. NOBL amassed $6.13 billion in its asset base. It has an expense ratio of 0.35 (read: A Quick Guide To Dividend Aristocrat ETFs).

First Trust Rising Dividend Achievers ETF (RDVY - Free Report)

This fund lends exposure to a diversified portfolio with a stellar dividend payout history. It tracks the NASDAQ US Rising Dividend Achievers Index, charging investors 50 bps in annual fees. The ETF accumulated $1.28 billion in its asset base.

Invesco Dividend Achievers ETF (PFM - Free Report)

With $405.7 million, this fund offers exposure to companies that raised dividends for 10 or more straight fiscal years. It has an expense ratio of 0.54%.

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 >>