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Why High Dividend ETFs are Beating the Market

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Dividend paying stocks are always popular with investors since about a third of S&P 500’s total returns since 1960 can be attributed to dividends. Over the past three decades, S&P 500 returns including dividends exceeded the index’s price returns by more than double, per BlackRock.

In the current market environment of rising rates and inflation, dividend stocks look better positioned than bonds since they may grow their payouts and realize capital appreciation and can provide some inflation protection over the long term.

Dividend payers also weather market downturns better than others. As a result, income focused investors have started relying more on dividend paying stocks.

There are two popular approaches to dividend investing—dividend growth stocks and high dividend stocks. I like dividend growth stocks for long-term investing since these are usually high-quality companies with solid balance sheets and stable cash flows, like Apple (AAPL - Free Report) and Microsoft (MSFT - Free Report) .

This year, however, high dividend payers have done better than dividend growers. They are typically in defensive sectors like utilities, real estate and consumer staples. Many energy companies have also boosted their payouts in recent years, and they are among the top holdings in high dividend funds.

The iShares Core High Dividend ETF (HDV - Free Report) holds high dividend paying equities screened for financial health. The ETF charges just 0.8% in expense ratio and has about $10.7 billion in assets. Exxon Mobil (XOM - Free Report) and AbbVie (ABBV - Free Report) are its top holdings.

The First Trust Morningstar Dividend Leaders Index Fund (FDL - Free Report) screens stocks for dividend consistency and sustainability. The fund has $2.6 billion in assets and charges 45 basis points. AT&T (T - Free Report) and AbbVie are its top holdings.

The $1.1 billion WisdomTree U.S. High Dividend Fund (DHS - Free Report) holds high-dividend-yielding companies. Exxon Mobil and Chevron (CVX - Free Report) are its top holdings.

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