Back to top

Image: Bigstock

Dividend Aristocrat ETFs to Stay Afloat Amid Likely Recession

Read MoreHide Full Article

The hunt for dividend in the equity market is always steady 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.

The present investing backdrop is saddled with uncertainties regarding sky-high inflation, the Russia-Ukraine war, a super-hawkish Fed in 2022 and renewed COVID-19 cases in various parts of the world. The Fed enacted a 75-bp rate hike last week. It marked the biggest Fed rate hike since 1994. So far this year, the Fed has hiked rates by 150 bps.

The obvious outcome is a slowdown in economic growth. The Fed has downgraded its forecast for 2022 median real GDP growth from 2.8% in March to 1.7% for 2022. It has also lowered the growth rate expectations to 1.7% (from 2.2% in March) for 2023 and 1.9% (from 2% in March) for 2024. The unemployment rate is projected to rise from 3.5% to 3.7% for 2022, 3.5% to 3.9% for 2023 and from 3.6% to 4.1% for 2024.

The inflation projection has been upped for this year, while the Fed expects inflation to cool off in 2023 and 2024. The federal funds rate is projected to be 3.4% for 2022 from 1.9% in March, 3.8% for 2023 from 2.8% and 3.4% for 2024 from 2.8%.

As recessionary fears flared up, the S&P 500, the Dow Jones and the Nasdaq Composite and the Russell 2000 lost about 5.8%, 4.8%, 4.7% and 7.5% last week. The yield on the 3-year Treasury yield fell marginally to 3.33% on Jun 16, while the benchmark 10-year Treasury note fell about 5 basis points to 3.28%. This scenario of the inversion of the yield curve indicates that long-term bond yields are under pressure (read: Biggest U.S. Rate Hike Since 1994 in June: 4 ETFs to Win).

Why to Bet on Dividend Aristocrats?

Dividend aristocrats are blue-chip dividend-paying companies with a long history of increasing dividend payments year over year. These generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis. Additionally, aristocrats tend to skew the portfolio to low volatile sectors and mature companies.

Investors should note that the dividend aristocrats, which have paid out higher dividend for at least 25 straight quarters, topped the S&P 500 value stocks by a wider margin, per an article published on

Some analysts are of the view that with, “the ongoing themes of deglobalization, higher energy and input costs, and higher wages” as well as tighter monetary policies, profit recession could be in the cards. Hence, betting big on quality stocks makes sense. Here is where dividend aristocrats should win. These stocks have superior fundamentals that enable them to hike their dividends consistently.

For investors, we have highlighted some popular ETFs that could be excellent choices:

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 $59.40 billion. The fund follows the NASDAQ US Dividend Achievers Select Index, which is composed of high-quality stocks that have a record of raising dividends every year. Vanguard Dividend Appreciation ETF holds about 270 securities in the basket with none accounting for more than 4.7% share. The fund charges 6 bps in annual fees.

SPDR S&P Dividend ETF (SDY - Free Report)

With AUM of $20.3 billion, SPDR S&P Dividend ETF provides well-diversified exposure to 120 U.S. stocks that have consistently increased their dividend for at least 20 consecutive years. This can be done by tracking the S&P High Yield Dividend Aristocrats Index. Each firm accounts for less than 2.6% of the assets. SPDR S&P Dividend ETF charges 35 bps in fees and trades in an average daily of 574,000 shares.

iShares Select Dividend ETF (DVY - Free Report)

iShares Select Dividend ETF provides exposure to the companies with a consistent five-year history of dividend payments. It follows the Dow Jones U.S. Select Dividend Index and holds 102 securities in its basket with each accounting for less than 2.7% of the assets. iShares Select Dividend ETF has AUM of $21.5 billion and charges 39 bps in fees per year from investors.

Schwab U.S. Dividend Equity ETF (SCHD - Free Report)

With AUM of $34.3 billion, Schwab U.S. Dividend Equity ETF offers exposure to 105 high-dividend yielding U.S. companies that have a record of consistent dividend payments supported by fundamental strength based on financial ratios and ample liquidity. This can be easily done by tracking the Dow Jones U.S. Dividend 100 Index. Schwab U.S. Dividend Equity ETF charges 6 bps in annual fees and trades in an average daily volume of $3.2 million shares.


Published in