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The hunt for dividend in the equity market is always steady irrespective of how it is behaving. After all, who doesn’t like a steady stream of current income along with capital gains? And if investors are mired in a web of equity market uncertainty and global growth worries, the lure for dividend investing will increase.
Investors should note that not all dividend stocks serve the same purpose. While the high-yield ones are known for offering hefty current income, stocks with dividend growth point to quality investing — a pre-requisite to making money in this volatile environment. Notably, the year 2020 was a bit difficult for dividend investing due to the corporate cash crunch and announcement of dividend cuts (read: 5 Market-Beating Dividend ETFs of 2020).
But things have been changing as we have entered the year 2021. Vaccine rollout resulting in risk-on sentiments, higher inflationary expectations thanks to a super-easy monetary policy and the resultant rise in interest rates are now rife globally.
Most recently, the Fed chair Powell indicated that the central bank was not mulling over stopping its $120 billion-a-month purchases of bonds. He also pointed out that no interest hike will happen in the near term.
Both fiscal and monetary stimulus will push up benchmark treasury yields in the near term. The U.S. 10-year inflation breakeven rate, the yield difference between 10-year Treasuries and 10-year TIPS, rose to 2.12% on Jan 20, the maximum in more than two years, rising about 32 basis points since the start of 2020.
Why to Pick High-Dividend Securities
As economies are likely to rebound this year on vaccine breakthrough and inflation rates are likely to pace up, bond yields should soar. In such a scenario, investors may be interested in equities that have the potential to offer capital appreciation as well as benchmark-beating yields. After all, dividends are one of the ways to ride out the turbulent times.
Even if the stock or the fund falls, higher current income would go a long way in protecting investors’ total returns. After all, high-dividend ETFs provide investors avenues to make up for capital losses, if that happens at all.
We thus have zeroed in on some high-dividend ETFs.
The underlying Solactive Global SuperDividend Index tracks the performance of 100 equally weighted companies that rank among the highest dividend-yielding equity securities in the world. The index provider applies certain dividend stability filters. It charges 59 bps in fees and yields 7.61% annually.
The underlying S&P 500 High Dividend Index is designed to measure the performance of the top 80 dividend-paying securities listed on the S&P 500 Index, based on dividend yield. The fund yields 7 bps in fees and yields 4.68% annually.
The underlying FTSE High Dividend Yield Index which consists of common stocks of companies that generally pay higher-than-average dividends. The fund charges 6 bps in fees and yields 3.06% annually.
The underlying INDXX SuperDividend U.S. 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. The fund yields 7.53% annually and charges 46 bps in fees (read: 5 ETFs Under $20 Up for Gains in 2021).
The underlying Morningstar Dividend Yield Focus Index offers exposure to high-quality U.S. domiciled companies that have had strong financial health and the ability to sustain above-average dividend payouts. The fund charges 8 bps in fees and yields 3.95% annually.
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Guide to High Dividend Paying ETFs
The hunt for dividend in the equity market is always steady irrespective of how it is behaving. After all, who doesn’t like a steady stream of current income along with capital gains? And if investors are mired in a web of equity market uncertainty and global growth worries, the lure for dividend investing will increase.
Investors should note that not all dividend stocks serve the same purpose. While the high-yield ones are known for offering hefty current income, stocks with dividend growth point to quality investing — a pre-requisite to making money in this volatile environment. Notably, the year 2020 was a bit difficult for dividend investing due to the corporate cash crunch and announcement of dividend cuts (read: 5 Market-Beating Dividend ETFs of 2020).
But things have been changing as we have entered the year 2021. Vaccine rollout resulting in risk-on sentiments, higher inflationary expectations thanks to a super-easy monetary policy and the resultant rise in interest rates are now rife globally.
Most recently, the Fed chair Powell indicated that the central bank was not mulling over stopping its $120 billion-a-month purchases of bonds. He also pointed out that no interest hike will happen in the near term.
If this was not enough, President-elect Joe Biden’s “Rescue America” plan favors a COVID-19 relief package worth up to $1.9 trillion. Biden’s plan included $400 billion for coronavirus management, a trillion dollars of direct coronavirus relief (which comprises supplemental $1,400 relief checks to round out to the promised $2,000), and $440 billion in aid to communities and businesses (read: Biden Favors $1.9T COVID Stimulus: ETFs to Win/Lose).
Both fiscal and monetary stimulus will push up benchmark treasury yields in the near term. The U.S. 10-year inflation breakeven rate, the yield difference between 10-year Treasuries and 10-year TIPS, rose to 2.12% on Jan 20, the maximum in more than two years, rising about 32 basis points since the start of 2020.
Why to Pick High-Dividend Securities
As economies are likely to rebound this year on vaccine breakthrough and inflation rates are likely to pace up, bond yields should soar. In such a scenario, investors may be interested in equities that have the potential to offer capital appreciation as well as benchmark-beating yields. After all, dividends are one of the ways to ride out the turbulent times.
Even if the stock or the fund falls, higher current income would go a long way in protecting investors’ total returns. After all, high-dividend ETFs provide investors avenues to make up for capital losses, if that happens at all.
We thus have zeroed in on some high-dividend ETFs.
Global X SuperDividend ETF (SDIV - Free Report)
The underlying Solactive Global SuperDividend Index tracks the performance of 100 equally weighted companies that rank among the highest dividend-yielding equity securities in the world. The index provider applies certain dividend stability filters. It charges 59 bps in fees and yields 7.61% annually.
SPDR Portfolio S&P 500 High Dividend ETF (SPYD - Free Report)
The underlying S&P 500 High Dividend Index is designed to measure the performance of the top 80 dividend-paying securities listed on the S&P 500 Index, based on dividend yield. The fund yields 7 bps in fees and yields 4.68% annually.
Vanguard High Dividend Yield ETF (VYM - Free Report)
The underlying FTSE High Dividend Yield Index which consists of common stocks of companies that generally pay higher-than-average dividends. The fund charges 6 bps in fees and yields 3.06% annually.
Global X SuperDividend U.S. ETF (DIV - Free Report)
The underlying INDXX SuperDividend U.S. 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. The fund yields 7.53% annually and charges 46 bps in fees (read: 5 ETFs Under $20 Up for Gains in 2021).
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 the ability to sustain above-average dividend payouts. The fund charges 8 bps in fees and yields 3.95% 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 >>