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Take Shelter in Dividend Aristocrat ETFs After a Beaten-Down April
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Wall Street is grappling with a slew of headwinds like the Fed’s aggressive stance on rate hikes, persistently high inflation levels, supply-chain disturbances, resurging COVID-19 cases in China and the Russia-Ukraine war crisis.
The Dow Jones Industrial Average is down 9.3% in April. The other two broad market indices, the S&P 500 and the Nasdaq Composite, have also lost around 13.3% and 21.2% over the last month.
Investors are also on edge as the threat of a nuclear attack seems real. Kremlin has itself been stressing on the significant risk posing the usage of the highly fatal nuclear weapons in the attack. The U.S. Defense Secretary Lloyd Austin has retaliated to the nuclear war threats by stating it to be “very dangerous and unhelpful,” according to a CNBC article.
The resurging cases in China and lockdown measures have reinstated fears of a pandemic-induced global economic slowdown and renewed supply-chain disturbances.
Commenting on the market conditions, BMO Wealth Management’s Yung-Yu Ma has said that “The markets are trying to wrap around a lot of different cross-currents. With the Fed raising rates and all the uncertainties that the global economy is facing, it’s hard to get excited about paying the multiples that currently prevail in a lot of places in the market,” as mentioned in a CNBC article.
The economic data is also not pointing toward a very healthy U.S. economy. The world’s largest economy contracted at an annualized 1.4% sequentially in first-quarter 2022, lagging market forecasts of a 1.1% expansion. The metric also compared unfavorably with a 6.9% expansion in fourth-quarter 2021, largely due to a record trade deficit and a fall in inventory investment. Aggravating pandemic at the beginning of the year, the Russia-Ukraine war and high inflation levels have weighed on the economic growth in the first quarter of 2022.
Going on, Fed Chairman Jerome Powell has indicated aggressive rate hikes next month. In this regard, Powell mentioned at the International Monetary Fund Debate on the Global Economy that it will be “appropriate in my view to be moving a little more quickly,” as stated in a CNBC article. He also mentioned that “I also think there is something to be said for front-end loading any accommodation one thinks is appropriate. ... I would say 50 basis points will be on the table for the May meeting.”
The persistently high inflation levels are weighing on consumers’ confidence in the United States. The growing supply-chain disturbances emanating from the ongoing Russia-Ukraine war crisis and the resurging COVID-19 cases in China might trigger concerns over further rising inflation levels.
The Conference Board's measure of consumer confidence index stands at 107.3 in April 2022 versus 107.6 in March. Moreover, April’s reading missed the consensus estimate of 108, per a Reuters survey of economists. Also, the metric continues to be below the pre-pandemic level of 132.6 achieved in February 2020.
Market experts believe that Americans will continue to be bothered by the Russia-Ukraine war. Consumer spending might also be impacted if the inflation levels remain high.
Why Consider Dividend Aristocrat ETFs?
Dividend aristocrats are blue-chip dividend-paying companies with a long track record of increasing dividend payments year over year. Moreover, dividend aristocrat funds give investors dividend growth opportunities compared to other products in the space but might not necessarily have the highest yields.
‘Dividend aristocrats’ or ‘dividend growers’ are mostly deemed the smartest way to deal with market turmoil. The inclination toward dividend investing is rising because of easing monetary policy on the global front and the market uncertainty triggered by the pandemic and deceleration in global growth. Demand for these funds is mainly 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 form a strong portfolio with a higher scope of capital appreciation against simple dividend-paying stocks or those with high yields. As a result, these products deliver an excellent combination of annual dividend growth and capital-appreciation opportunity and are most beneficial to risk-averse long-term investors.
Against this backdrop, let’s take a look at some ETFs that investors can consider:
Vanguard Dividend Appreciation ETF is the largest and the most popular ETF in the dividend space, with AUM of $65.53 billion. VIG follows the S&P U.S. Dividend Growers Index. Vanguard Dividend Appreciation ETF charges 6 basis points (bps) in annual fees (read: A Guide to the 10 Most-Popular Dividend ETFs).
SPDR S&P Dividend ETF seeks to provide investment results that before fees and expenses generally correspond to the total return performance of the S&P High Yield Dividend Aristocrats Index. The index screens companies that consistently increased their dividend for at least 20 consecutive years. SDY has AUM of $23.81 billion. SPDR S&P Dividend ETF charges 35 bps in fees per year (read: How to Play Uncertainties in Q2 With ETFs?).
iShares Select Dividend ETF provides exposure to broad-cap U.S. companies with a consistent history of dividends and tracks the Dow Jones U.S. Select Dividend Index. DVY has AUM of $22.25 billion. iShares Select Dividend ETF charges 38 bps in fees per year (as stated in the prospectus).
ProShares S&P 500 Dividend Aristocrats ETF seeks investment results before fees and expenses that track the performance of the S&P 500 Dividend Aristocrats Index. NOBL is the only ETF focusing exclusively on the S&P 500 Dividend Aristocrats, which are high-quality companies that not just paid out dividends but also raised the same for at least 25 consecutive years, with most doing so for 40 years or more. NOBL amassed $10.24 billion in its asset base. ProShares S&P 500 Dividend Aristocrats ETF has an expense ratio of 0.35%.
This fund provides exposure to companies boasting a history of sustained dividend growth by tracking the Morningstar US Dividend Growth Index. DGRO has AUM of $23.43 billion. iShares Core Dividend Growth ETF charges 8 bps in fees per year.
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Take Shelter in Dividend Aristocrat ETFs After a Beaten-Down April
Wall Street is grappling with a slew of headwinds like the Fed’s aggressive stance on rate hikes, persistently high inflation levels, supply-chain disturbances, resurging COVID-19 cases in China and the Russia-Ukraine war crisis.
The Dow Jones Industrial Average is down 9.3% in April. The other two broad market indices, the S&P 500 and the Nasdaq Composite, have also lost around 13.3% and 21.2% over the last month.
Investors are also on edge as the threat of a nuclear attack seems real. Kremlin has itself been stressing on the significant risk posing the usage of the highly fatal nuclear weapons in the attack. The U.S. Defense Secretary Lloyd Austin has retaliated to the nuclear war threats by stating it to be “very dangerous and unhelpful,” according to a CNBC article.
The resurging cases in China and lockdown measures have reinstated fears of a pandemic-induced global economic slowdown and renewed supply-chain disturbances.
Commenting on the market conditions, BMO Wealth Management’s Yung-Yu Ma has said that “The markets are trying to wrap around a lot of different cross-currents. With the Fed raising rates and all the uncertainties that the global economy is facing, it’s hard to get excited about paying the multiples that currently prevail in a lot of places in the market,” as mentioned in a CNBC article.
The economic data is also not pointing toward a very healthy U.S. economy. The world’s largest economy contracted at an annualized 1.4% sequentially in first-quarter 2022, lagging market forecasts of a 1.1% expansion. The metric also compared unfavorably with a 6.9% expansion in fourth-quarter 2021, largely due to a record trade deficit and a fall in inventory investment. Aggravating pandemic at the beginning of the year, the Russia-Ukraine war and high inflation levels have weighed on the economic growth in the first quarter of 2022.
Going on, Fed Chairman Jerome Powell has indicated aggressive rate hikes next month. In this regard, Powell mentioned at the International Monetary Fund Debate on the Global Economy that it will be “appropriate in my view to be moving a little more quickly,” as stated in a CNBC article. He also mentioned that “I also think there is something to be said for front-end loading any accommodation one thinks is appropriate. ... I would say 50 basis points will be on the table for the May meeting.”
The persistently high inflation levels are weighing on consumers’ confidence in the United States. The growing supply-chain disturbances emanating from the ongoing Russia-Ukraine war crisis and the resurging COVID-19 cases in China might trigger concerns over further rising inflation levels.
The Conference Board's measure of consumer confidence index stands at 107.3 in April 2022 versus 107.6 in March. Moreover, April’s reading missed the consensus estimate of 108, per a Reuters survey of economists. Also, the metric continues to be below the pre-pandemic level of 132.6 achieved in February 2020.
Market experts believe that Americans will continue to be bothered by the Russia-Ukraine war. Consumer spending might also be impacted if the inflation levels remain high.
Why Consider Dividend Aristocrat ETFs?
Dividend aristocrats are blue-chip dividend-paying companies with a long track record of increasing dividend payments year over year. Moreover, dividend aristocrat funds give investors dividend growth opportunities compared to other products in the space but might not necessarily have the highest yields.
‘Dividend aristocrats’ or ‘dividend growers’ are mostly deemed the smartest way to deal with market turmoil. The inclination toward dividend investing is rising because of easing monetary policy on the global front and the market uncertainty triggered by the pandemic and deceleration in global growth. Demand for these funds is mainly 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 form a strong portfolio with a higher scope of capital appreciation against simple dividend-paying stocks or those with high yields. As a result, these products deliver an excellent combination of annual dividend growth and capital-appreciation opportunity and are most beneficial to risk-averse 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)
Vanguard Dividend Appreciation ETF is the largest and the most popular ETF in the dividend space, with AUM of $65.53 billion. VIG follows the S&P U.S. Dividend Growers Index. Vanguard Dividend Appreciation ETF charges 6 basis points (bps) in annual fees (read: A Guide to the 10 Most-Popular Dividend ETFs).
SPDR S&P Dividend ETF (SDY - Free Report)
SPDR S&P Dividend ETF seeks to provide investment results that before fees and expenses generally correspond to the total return performance of the S&P High Yield Dividend Aristocrats Index. The index screens companies that consistently increased their dividend for at least 20 consecutive years. SDY has AUM of $23.81 billion. SPDR S&P Dividend ETF charges 35 bps in fees per year (read: How to Play Uncertainties in Q2 With ETFs?).
iShares Select Dividend ETF (DVY - Free Report)
iShares Select Dividend ETF provides exposure to broad-cap U.S. companies with a consistent history of dividends and tracks the Dow Jones U.S. Select Dividend Index. DVY has AUM of $22.25 billion. iShares Select Dividend ETF charges 38 bps in fees per year (as stated in the prospectus).
ProShares S&P 500 Dividend Aristocrats ETF (NOBL - Free Report)
ProShares S&P 500 Dividend Aristocrats ETF seeks investment results before fees and expenses that track the performance of the S&P 500 Dividend Aristocrats Index. NOBL is the only ETF focusing exclusively on the S&P 500 Dividend Aristocrats, which are high-quality companies that not just paid out dividends but also raised the same for at least 25 consecutive years, with most doing so for 40 years or more. NOBL amassed $10.24 billion in its asset base. ProShares S&P 500 Dividend Aristocrats ETF 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. DGRO has AUM of $23.43 billion. iShares Core Dividend Growth ETF charges 8 bps in fees per year.