Back to top

Image: Bigstock

Grab Dividend Aristocrats ETFs Amid Resurging Covid-19 Cases

Read MoreHide Full Article

Investors seem to be again worrying about the resurging coronavirus cases almost after a year since Wall Street plunged to the lowest level on Mar 23, 2020, due to the prevailing global health crisis. Consequently, the Dow Jones Industrial Average closed the session in red on Mar 24. Also, the S&P 500 and the Nasdaq were down 0.6% and 2%, respectively, on the same day. The tech-heavy Nasdaq index saw weakness in major players like Apple (AAPL - Free Report) , Facebook (FB - Free Report) and Netflix (NFLX) as all declined more than 2%.

The rising number of new coronavirus cases and implementation of lockdown measures to control the outbreak are affecting the stocks that were gaining from the re-opening economy. Notably, spaces like travel, industrial, materials and retail are seeing this weakness. In fact, stocks belonging to airlines and cruise operators, like Norwegian Cruise Line, Royal Caribbean and Carnival, lost 4.9%, 1.9% and 2.8%, respectively. Delta and United Airlines also saw weaknesses in yesterday’s session.

Markedly, health experts are continuously issuing warning against reopening the economy amid the emergence and spread of Covid-19 variants. Despite the accelerated vaccine roll-out programs, the United States is also seeing a rise in coronavirus cases. The highly contagious variants are appearing to be a probable reason behind the fresh cases. The contagious U.K. variant currently makes up for about 30% of the coronavirus cases in the United States, per a CNBC article. Going by the same article, there are chances of the variant becoming dominant by the end of this month or early April.

According to Michael Osterholm, director of the Center for Infectious Disease Research and Policy at the University of Minnesota, the B.1.1.7 variant has caused a rise in transmission in countries with a vaccination drive similar to the United States (per a CNN report). Globally, in order to combat the outbreak, Germany has extended the lockdown until Apr 18, while the majority of France is also under lockdown.

Commenting on the current condition, Brad McMillan, chief investment officer at Commonwealth Financial Network has said that “despite the vast improvements, the third pandemic wave left large parts of the population vulnerable both medically and economically. That damage will take time to heal. Vaccinations will get that spread under control, but it will take time,” as quoted in a CNBC article.

Why Dividend Aristocrats ETFs?

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

‘Dividend aristocrats’ or ‘dividend growers’ are mostly deemed to be the smartest way to deal with market turmoil. Notably, the inclination toward dividend investing has been rising due to easing monetary policy on the global front, and market uncertainty triggered by the pandemic and deceleration in global growth. The demand for these funds is mostly 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 result in a strong portfolio, with a higher scope of capital appreciation as against the simple dividend-paying stocks or those with high yields. As a result, these products deliver a nice combination of annual dividend growth and capital-appreciation opportunity and are mostly good for risk adverse long-term investors.

Against this backdrop, let’s take a look at some ETFs that investors can 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 $54.58 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: Filling March Madness in "Sweet 16" Brackets of ETFs).

SPDR S&P Dividend ETF (SDY - Free Report)

This fund 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 for companies that have consistently increased their dividend for at least 20 consecutive years, and weights the stocks by yield. The fund has an AUM of $18.01 billion. It charges 35 bps in fees per year (read: A Guide to Dividend Aristocrat ETFs).

iShares Select Dividend ETF (DVY - Free Report)

The fund provides exposure to broad-cap U.S. companies with a consistent history of dividends and tracks the Dow Jones U.S. Select Dividend Index. The fund has an AUM of $17.20 billion. It charges 39 bps in fees per year.

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

This fund seeks investment results, before fees and expenses, that track the performance of the S&P 500 Dividend Aristocrats Index. It is the only ETF focusing exclusively on the S&P 500 Dividend Aristocrats — high-quality companies that have not just paid dividends but grown them for at least 25 consecutive years, with most doing so for 40 years or more. NOBL has amassed $7.61 billion in its asset base. It has an expense ratio of 0.35%.

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 an AUM of $16.93 billion. It charges 8 bps in fees per year (read: 5 Best ETF Investing Ideas for 2021).

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 >>