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The appeal for dividend-focused ETFs is high at the start of 2022, given bouts of volatility triggered by a hawkish Fed, rising yields, skyrocketing inflation and of course a spike in the Omicron COVID-19 variant cases. This is especially true as dividend-focused ETFs are major sources of consistent income for investors in any type of market though they do not offer dramatic price appreciation.
As such, many dividend ETFs have been on the rise, reaching new peaks. These include iShares Select Dividend ETF (DVY - Free Report) , Morningstar Dividend Leaders Index Fund (FDL - Free Report) , iShares Core High Dividend ETF (HDV - Free Report) , SPDR Portfolio S&P 500 High Dividend ETF (SPYD - Free Report) and Vanguard High Dividend Yield ETF (VYM - Free Report) . These funds also have the potential to move higher given the prevailing market uncertainty (read: Buy These Dividend ETFs to Beat Inflation & Omicron in 2022).
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 out dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.
Current Market Trends
Omicron cases are surging in the United States with more than a million new cases in a single-day and hospitalizations hitting new highs.
The 10-year Treasury yield hit a two-year high on bets that the Federal Reserve could raise interest rates as soon as in March. The latest Fed minutes revealed policymakers’ concerns about worsening inflation and early interest rate hikes to combat rising inflation. The policymakers signaled three rate increases this year and three in the following year as inflation concerns deepened. The probabilities of a March interest rate hike of 0.25% surged to 72%, according to fed futures trading contracts.
However, higher yields indicate investors’ optimism in the economy. A still-improving economy backed by job growth and higher consumer confidence will likely bolster risk-on trade. Increased U.S. consumer confidence, suggests that the economy would continue to expand in 2022. Additionally, President Biden’s administration took steps to eliminate supply-chain bottlenecks, indicating that higher inflation will not last very long. Further, the wider spread of vaccinations, new vaccines as well as solid corporate earnings bode well for the economy and thus the stock market (read: Higher Yields Raise Appeal for Inverse Treasury ETFs).
iShares Select Dividend ETF provides exposure to the high dividend-paying U.S. equities with a five-year history of dividend growth. It follows the Dow Jones U.S. Select Dividend Index and holds 101 securities in its basket with each accounting for less than 2.6% of assets.
iShares Select Dividend ETF has AUM of $20.6 billion and an average daily volume of around 798,000 shares. It charges 38 bps in fees per year from investors and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Dividend ETF Hits New 52-Week High).
First Trust Morningstar Dividend Leaders Index Fund (FDL - Free Report)
First Trust Morningstar Dividend Leaders Index Fund offers exposure to stocks that have shown the highest dividend consistency and dividend sustainability by tracking the Morningstar Dividend Leaders Index. It holds 100 stocks in its basket with key holdings in healthcare, communication services, consumer staples and utilities.
With AUM of $1.8 billion, First Trust Morningstar Dividend Leaders Index Fund charges 45 bps in annual fees from investors and trades in a solid volume of about 180,000 shares a day. It has a Zacks ETF Rank #3 with a Medium risk outlook.
iShares Core High Dividend ETF offers exposure to 75 high quality and high dividend stocks. It tracks the Morningstar Dividend Yield Focus Index and is slightly concentrated on the top firms with each making up for no more than 9% share.
iShares Core High Dividend ETF has AUM of $7.7 billion and trades in a solid volume of around 465,000 shares a day. It charges 8 bps in fees per year and has a Zacks ETF Rank #3 with a Medium risk outlook.
SPDR Portfolio S&P 500 High Dividend ETF provides exposure to stocks with a high level of dividend income and the opportunity for capital appreciation by tracking the S&P 500 High Dividend Index. Holding 76 stocks in its basket, the fund is well diversified across securities with each making up for less than 1.8% of assets. Financials, utilities, real estate and energy are the top four sectors with double-digit exposure each.
SPDR Portfolio S&P 500 High Dividend ETF has AUM of $5.5 billion and trades in volume of about 1.4 million shares. It charges 7 bps in annual fees and has a Zacks ETF Rank of #1 (Strong Buy) with a Medium risk outlook.
Vanguard High Dividend Yield ETF provides exposure to the high-yielding dividend stocks by tracking the FTSE High Dividend Yield Index. Holding 410 securities, the product is pretty well spread out across components as each holds no more than 4% of the assets. Vanguard High Dividend Yield ETF has key holdings in financials, consumer staples and healthcare with double-digit exposure each.
Vanguard High Dividend Yield ETF has amassed $43.7 billion in its asset base while trading in volume of 1.6 million shares a day on average. Expense ratio is 0.06%. VYM has a Zacks ETF Rank #1 with a Medium risk outlook.
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Dividend ETFs At New Peaks Amid Volatility
The appeal for dividend-focused ETFs is high at the start of 2022, given bouts of volatility triggered by a hawkish Fed, rising yields, skyrocketing inflation and of course a spike in the Omicron COVID-19 variant cases. This is especially true as dividend-focused ETFs are major sources of consistent income for investors in any type of market though they do not offer dramatic price appreciation.
As such, many dividend ETFs have been on the rise, reaching new peaks. These include iShares Select Dividend ETF (DVY - Free Report) , Morningstar Dividend Leaders Index Fund (FDL - Free Report) , iShares Core High Dividend ETF (HDV - Free Report) , SPDR Portfolio S&P 500 High Dividend ETF (SPYD - Free Report) and Vanguard High Dividend Yield ETF (VYM - Free Report) . These funds also have the potential to move higher given the prevailing market uncertainty (read: Buy These Dividend ETFs to Beat Inflation & Omicron in 2022).
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 out dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.
Current Market Trends
Omicron cases are surging in the United States with more than a million new cases in a single-day and hospitalizations hitting new highs.
The 10-year Treasury yield hit a two-year high on bets that the Federal Reserve could raise interest rates as soon as in March. The latest Fed minutes revealed policymakers’ concerns about worsening inflation and early interest rate hikes to combat rising inflation. The policymakers signaled three rate increases this year and three in the following year as inflation concerns deepened. The probabilities of a March interest rate hike of 0.25% surged to 72%, according to fed futures trading contracts.
However, higher yields indicate investors’ optimism in the economy. A still-improving economy backed by job growth and higher consumer confidence will likely bolster risk-on trade. Increased U.S. consumer confidence, suggests that the economy would continue to expand in 2022. Additionally, President Biden’s administration took steps to eliminate supply-chain bottlenecks, indicating that higher inflation will not last very long. Further, the wider spread of vaccinations, new vaccines as well as solid corporate earnings bode well for the economy and thus the stock market (read: Higher Yields Raise Appeal for Inverse Treasury ETFs).
Let’s delve deeper into the above-mentioned ETFs:
iShares Select Dividend ETF (DVY - Free Report)
iShares Select Dividend ETF provides exposure to the high dividend-paying U.S. equities with a five-year history of dividend growth. It follows the Dow Jones U.S. Select Dividend Index and holds 101 securities in its basket with each accounting for less than 2.6% of assets.
iShares Select Dividend ETF has AUM of $20.6 billion and an average daily volume of around 798,000 shares. It charges 38 bps in fees per year from investors and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Dividend ETF Hits New 52-Week High).
First Trust Morningstar Dividend Leaders Index Fund (FDL - Free Report)
First Trust Morningstar Dividend Leaders Index Fund offers exposure to stocks that have shown the highest dividend consistency and dividend sustainability by tracking the Morningstar Dividend Leaders Index. It holds 100 stocks in its basket with key holdings in healthcare, communication services, consumer staples and utilities.
With AUM of $1.8 billion, First Trust Morningstar Dividend Leaders Index Fund charges 45 bps in annual fees from investors and trades in a solid volume of about 180,000 shares a day. It has a Zacks ETF Rank #3 with a Medium risk outlook.
iShares Core High Dividend ETF (HDV - Free Report)
iShares Core High Dividend ETF offers exposure to 75 high quality and high dividend stocks. It tracks the Morningstar Dividend Yield Focus Index and is slightly concentrated on the top firms with each making up for no more than 9% share.
iShares Core High Dividend ETF has AUM of $7.7 billion and trades in a solid volume of around 465,000 shares a day. It charges 8 bps in fees per year and has a Zacks ETF Rank #3 with a Medium risk outlook.
SPDR Portfolio S&P 500 High Dividend ETF (SPYD - Free Report)
SPDR Portfolio S&P 500 High Dividend ETF provides exposure to stocks with a high level of dividend income and the opportunity for capital appreciation by tracking the S&P 500 High Dividend Index. Holding 76 stocks in its basket, the fund is well diversified across securities with each making up for less than 1.8% of assets. Financials, utilities, real estate and energy are the top four sectors with double-digit exposure each.
SPDR Portfolio S&P 500 High Dividend ETF has AUM of $5.5 billion and trades in volume of about 1.4 million shares. It charges 7 bps in annual fees and has a Zacks ETF Rank of #1 (Strong Buy) with a Medium risk outlook.
Vanguard High Dividend Yield ETF (VYM - Free Report)
Vanguard High Dividend Yield ETF provides exposure to the high-yielding dividend stocks by tracking the FTSE High Dividend Yield Index. Holding 410 securities, the product is pretty well spread out across components as each holds no more than 4% of the assets. Vanguard High Dividend Yield ETF has key holdings in financials, consumer staples and healthcare with double-digit exposure each.
Vanguard High Dividend Yield ETF has amassed $43.7 billion in its asset base while trading in volume of 1.6 million shares a day on average. Expense ratio is 0.06%. VYM has a Zacks ETF Rank #1 with a Medium risk outlook.