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The hunt for dividend in the equity market is always on 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 the ongoing 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 started changing as we entered the year 2021. Vaccine rollout resulting in risk-on sentiments, higher inflationary expectations thanks to a super-easy monetary policy, President Biden’s $1.9-trillion COVID relief package launch and the resultant rise in interest rates are now rife. The Fed also indicated that it will keep rates at the rock-bottom levels until 2023. Plus, the U.S. central bank has also been pursuing QE.
The U.S. 10-year inflation breakeven rate, the yield difference between 10-year Treasuries and 10-year TIPS, rose to 2.31% on Apr 9, 2021, rising from 0.94% from Apr 20, 2020. In short, as economies are likely to rebound this year on vaccine breakthrough and inflation rates may 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.
Below we highlight a few dividend ETFs that are at a record high. Most of these ETFs offer yields higher than the benchmark U.S.-treasury yield (1.69% as of Apr 12, 2021). Some of the below-mentioned ETFs possess stocks that have a strong history of hiking dividends regularly.
ETFs in Focus
S&P Midcap 400 Dividend ProShares (REGL - Free Report) – 10.54% Average Annual Return Since Inception; Yields 2.04% annually
Debuting on Feb 3, 2015, this is the only ETF focusing on the S&P MidCap 400 Dividend Aristocrats—high-quality companies that have paid dividends as well as increased them for at least 15 consecutive years. The fund charges 41 bps in fees.
Legg Mason Low Volatility High Dividend ETF (LVHD - Free Report) – 10.08% Average Annual Return Since Inception; Yields 3.17% annually
Debuting in December 2015, the fund looks to track the investment results of an underlying index composed of equity securities of U.S. companies with relatively high yield and low price and earnings volatility. The fund charges 27 bps in fees.
S&P Dividend SPDR (SDY - Free Report) ) – 9.43% Average Annual Return Since Inception; Yields 2.65% annually
Launched in November 2005, the fund looks to track the S&P High Yield Dividend Aristocrats Index. The Index screens for companies that have consistently boosted their dividend for at least 20 successive years, and weights the stocks by yield. The fund charges 35 bps in fees.
First Trust Morningstar Dividend Leaders Index Fund (FDL - Free Report) – 7.39% Average Annual Return Since Inception; Yields 3.86%
The fund made its debut in March 2006 and follows the Morningstar Dividend Leaders Index. The index consists of stocks listed on one of the three major exchanges, NYSE, NYSE Amex or Nasdaq, that have shown dividend consistency and dividend sustainability. Real Estate Investment Trusts (REITs) are not included. The fund charges 45 bps in fees.
Victory Dividend Accelerator ETF (VSDA - Free Report) – 15.02% Average Annual Return Since Inception; Yields 1.44%
The fund hit the market in April 2017. The fund offers exposure to large-cap U.S. stocks, that feature not only a history of increasing dividends, but which also possess the highest probability of future dividend growth. It focuses on exposure to dividend growth, rather than yielding. The net expense ratio of the fund is 0.35%.
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5 Dividend ETFs Hovering at Record High
The hunt for dividend in the equity market is always on 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 the ongoing 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 started changing as we entered the year 2021. Vaccine rollout resulting in risk-on sentiments, higher inflationary expectations thanks to a super-easy monetary policy, President Biden’s $1.9-trillion COVID relief package launch and the resultant rise in interest rates are now rife. The Fed also indicated that it will keep rates at the rock-bottom levels until 2023. Plus, the U.S. central bank has also been pursuing QE.
The U.S. 10-year inflation breakeven rate, the yield difference between 10-year Treasuries and 10-year TIPS, rose to 2.31% on Apr 9, 2021, rising from 0.94% from Apr 20, 2020. In short, as economies are likely to rebound this year on vaccine breakthrough and inflation rates may 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.
Below we highlight a few dividend ETFs that are at a record high. Most of these ETFs offer yields higher than the benchmark U.S.-treasury yield (1.69% as of Apr 12, 2021). Some of the below-mentioned ETFs possess stocks that have a strong history of hiking dividends regularly.
ETFs in Focus
S&P Midcap 400 Dividend ProShares (REGL - Free Report) – 10.54% Average Annual Return Since Inception; Yields 2.04% annually
Debuting on Feb 3, 2015, this is the only ETF focusing on the S&P MidCap 400 Dividend Aristocrats—high-quality companies that have paid dividends as well as increased them for at least 15 consecutive years. The fund charges 41 bps in fees.
Legg Mason Low Volatility High Dividend ETF (LVHD - Free Report) – 10.08% Average Annual Return Since Inception; Yields 3.17% annually
Debuting in December 2015, the fund looks to track the investment results of an underlying index composed of equity securities of U.S. companies with relatively high yield and low price and earnings volatility. The fund charges 27 bps in fees.
S&P Dividend SPDR (SDY - Free Report) ) – 9.43% Average Annual Return Since Inception; Yields 2.65% annually
Launched in November 2005, the fund looks to track the S&P High Yield Dividend Aristocrats Index. The Index screens for companies that have consistently boosted their dividend for at least 20 successive years, and weights the stocks by yield. The fund charges 35 bps in fees.
First Trust Morningstar Dividend Leaders Index Fund (FDL - Free Report) – 7.39% Average Annual Return Since Inception; Yields 3.86%
The fund made its debut in March 2006 and follows the Morningstar Dividend Leaders Index. The index consists of stocks listed on one of the three major exchanges, NYSE, NYSE Amex or Nasdaq, that have shown dividend consistency and dividend sustainability. Real Estate Investment Trusts (REITs) are not included. The fund charges 45 bps in fees.
Victory Dividend Accelerator ETF (VSDA - Free Report) – 15.02% Average Annual Return Since Inception; Yields 1.44%
The fund hit the market in April 2017. The fund offers exposure to large-cap U.S. stocks, that feature not only a history of increasing dividends, but which also possess the highest probability of future dividend growth. It focuses on exposure to dividend growth, rather than yielding. The net expense ratio of the fund is 0.35%.
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 >>