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The appeal for dividend-focused ETFs is in vogue with bulls and bears playing tug-of-war lately. This is especially true as concerns over the fast-spread of the Delta variant of COVID-19 and the potential for a slower recovery took a toll on investors’ sentiment.
Per the latest data from U.S. Centers for Disease Control and Prevention, there were about 72,000 new cases per day of COVID-19 in the United States as of Saturday, up 44% over the previous week and higher than the peak set in the summer of 2020. Hospital admissions increased 41% and deaths jumped 25% to 300 per day. On the other hand, the spate of upbeat earnings and continued Q2 optimism are supporting risk-on trade. The picture emerging from the Q2 earnings season is one of all-round strength, with aggregate total quarterly earnings on track to reach a new all-time record and impressive momentum on the revenue side.
Additionally, the latest economic data have been mixed. The U.S. economy returned to the pre-pandemic level with GDP rising 6.5% annually in the second quarter, indicating a sustained recovery from the pandemic recession. Consumer confidence rose to a 17-month high in July, suggesting that consumer spending should support robust growth in the second half of this year (read: U.S. Economy Returns to Pre-Pandemic Level: 4 ETF Picks).
Meanwhile, growth in U.S. manufacturing activity slowed for a second straight month in July amid the ongoing supply-chain problems. With the start of the third quarter, all segments of the manufacturing economy are being impacted by near record-long raw-material lead times, continued shortages of critical basic materials, rising commodity prices and difficulties in transporting products, according to the chair of the ISM manufacturing survey committee.
In such a scenario, dividend investing remains a popular strategy. Though it does not offer dramatic price appreciation, the strategy is a major source of consistent income for investors in any type of market. The dividend-focused products offer safety through payouts, and stability in the form of mature companies that are less volatile amid large swings in stock prices. This is because the companies that pay dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.
While there are plenty of options in the dividend ETF world, dividend aristocrats proved to be highly beneficial in the current market environment. These stocks have superior fundamentals that make dividend growth a quality and promising investment for the long term. These include a sustainable business model, a long track of profitability, rising cash flows, good liquidity, a strong balance sheet and some value characteristics. Further, a history of strong dividend growth indicates that dividend increase is likely in the future.
We have presented five ETFs that hit all-time highs in the last trading session and have the potential to move higher given the prevailing market uncertainty.
This is the largest and most-popular ETF in the dividend space with AUM of $61.7 billion and an average daily volume of about 1.2 million shares. The fund follows the NASDAQ US Dividend Achievers Select Index, which is composed of high-quality stocks that have a record of raising dividend every year. It holds 247 securities in the basket and charges 6 bps in annual fees. The fund has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: Try Dividend Aristocrat ETFs to Fight Rising Delta Variant Woes).
This fund provides exposure to companies having a history of sustained dividend growth by tracking the Morningstar US Dividend Growth Index. It holds 389 stocks in its basket and has accumulated $19.9 billion in its asset base. It charges 8 bps in fees per year and has a Zacks ETF Rank #1 with a Medium risk outlook.
WisdomTree U.S. Quality Dividend Growth Fund (DGRW - Free Report)
This fund tracks the WisdomTree U.S. Quality Dividend Growth Index and offers diversified exposure to U.S. dividend-paying stocks with both growth and quality characteristics like long-term earnings growth expectations, and three-year historical averages for return on equity and return on assets. It has gathered $6.3 billion in its asset base and charges 28 bps in fees per year from investors. The ETF holds 298 securities in its basket. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: 5 ETF Zones Hitting Highs As Growth Worries Resurface).
With AUM of $661.4 million, this fund follows the NASDAQ US Broad Dividend Achievers Index and offers exposure to 350 stocks that have increased annual dividends for 10 or more consecutive fiscal years. It has an expense ratio of 0.53% and a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
This ETF offers exposure to large-cap U.S. stocks with a minimum of five consecutive years of increasing dividends and a higher probability of future dividend growth. It follows the Nasdaq Victory Dividend Accelerator Index, holding 76 securities in its basket. VSDA has accumulated $345.9 million in its asset base and charges 35 bps in annual fees.
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Dividend ETFs Scaling New Peaks on Bull-Bear Play
The appeal for dividend-focused ETFs is in vogue with bulls and bears playing tug-of-war lately. This is especially true as concerns over the fast-spread of the Delta variant of COVID-19 and the potential for a slower recovery took a toll on investors’ sentiment.
Per the latest data from U.S. Centers for Disease Control and Prevention, there were about 72,000 new cases per day of COVID-19 in the United States as of Saturday, up 44% over the previous week and higher than the peak set in the summer of 2020. Hospital admissions increased 41% and deaths jumped 25% to 300 per day. On the other hand, the spate of upbeat earnings and continued Q2 optimism are supporting risk-on trade. The picture emerging from the Q2 earnings season is one of all-round strength, with aggregate total quarterly earnings on track to reach a new all-time record and impressive momentum on the revenue side.
Additionally, the latest economic data have been mixed. The U.S. economy returned to the pre-pandemic level with GDP rising 6.5% annually in the second quarter, indicating a sustained recovery from the pandemic recession. Consumer confidence rose to a 17-month high in July, suggesting that consumer spending should support robust growth in the second half of this year (read: U.S. Economy Returns to Pre-Pandemic Level: 4 ETF Picks).
Meanwhile, growth in U.S. manufacturing activity slowed for a second straight month in July amid the ongoing supply-chain problems. With the start of the third quarter, all segments of the manufacturing economy are being impacted by near record-long raw-material lead times, continued shortages of critical basic materials, rising commodity prices and difficulties in transporting products, according to the chair of the ISM manufacturing survey committee.
In such a scenario, dividend investing remains a popular strategy. Though it does not offer dramatic price appreciation, the strategy is a major source of consistent income for investors in any type of market. The dividend-focused products offer safety through payouts, and stability in the form of mature companies that are less volatile amid large swings in stock prices. This is because the companies that pay dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.
While there are plenty of options in the dividend ETF world, dividend aristocrats proved to be highly beneficial in the current market environment. These stocks have superior fundamentals that make dividend growth a quality and promising investment for the long term. These include a sustainable business model, a long track of profitability, rising cash flows, good liquidity, a strong balance sheet and some value characteristics. Further, a history of strong dividend growth indicates that dividend increase is likely in the future.
We have presented five ETFs that hit all-time highs in the last trading session and have the potential to move higher given the prevailing market uncertainty.
Vanguard Dividend Appreciation ETF (VIG - Free Report)
This is the largest and most-popular ETF in the dividend space with AUM of $61.7 billion and an average daily volume of about 1.2 million shares. The fund follows the NASDAQ US Dividend Achievers Select Index, which is composed of high-quality stocks that have a record of raising dividend every year. It holds 247 securities in the basket and charges 6 bps in annual fees. The fund has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: Try Dividend Aristocrat ETFs to Fight Rising Delta Variant Woes).
iShares Core Dividend Growth ETF (DGRO - Free Report)
This fund provides exposure to companies having a history of sustained dividend growth by tracking the Morningstar US Dividend Growth Index. It holds 389 stocks in its basket and has accumulated $19.9 billion in its asset base. It charges 8 bps in fees per year and has a Zacks ETF Rank #1 with a Medium risk outlook.
WisdomTree U.S. Quality Dividend Growth Fund (DGRW - Free Report)
This fund tracks the WisdomTree U.S. Quality Dividend Growth Index and offers diversified exposure to U.S. dividend-paying stocks with both growth and quality characteristics like long-term earnings growth expectations, and three-year historical averages for return on equity and return on assets. It has gathered $6.3 billion in its asset base and charges 28 bps in fees per year from investors. The ETF holds 298 securities in its basket. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: 5 ETF Zones Hitting Highs As Growth Worries Resurface).
Invesco Dividend Achievers ETF (PFM - Free Report)
With AUM of $661.4 million, this fund follows the NASDAQ US Broad Dividend Achievers Index and offers exposure to 350 stocks that have increased annual dividends for 10 or more consecutive fiscal years. It has an expense ratio of 0.53% and a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
VictoryShares Dividend Accelerator ETF (VSDA - Free Report)
This ETF offers exposure to large-cap U.S. stocks with a minimum of five consecutive years of increasing dividends and a higher probability of future dividend growth. It follows the Nasdaq Victory Dividend Accelerator Index, holding 76 securities in its basket. VSDA has accumulated $345.9 million in its asset base and charges 35 bps in annual fees.