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Play Dirt-Cheap Dividend ETFs to Fight More Fed Rate Hikes

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The year 2022 as a whole could easily be attributed to the Russia-Ukraine war, red-hot inflation and rising-rate worries. No wonder, such worries caused an upheaval in the market this year. Wall Street witnessed the worst first half in 50 years. The downfall is showing no clear signs of abating. Heightened rising rate worries amid super-hawkish cues from the Fed have bummed out Wall Street this year.

Federal Reserve officials agreed last month that interest rates may need to keep rising for longer to ward off higher inflation. Preventing inflation is the Fed’s first priority as the Fed won’t shift from its tighter policies even if that slowed the U.S. economy.

Officials hiked rates by 75 basis points in June, the most since 1994, lifting their benchmark to a target range of 1.5% to 1.75%. Policy makers supported raising rates at their next meeting in July by either 50 or 75 basis point, according to minutes of the Federal Open Market Committee’s June 14-15 policy meeting released on Jul 6.

Hence, one can expect further rise in rates. As of Jul 6, 2022, the U.S. benchmark treasury yield was 2.93%. Against this backdrop, dividend ETFs can act as a great safety. Be it a bull or a bear market, investors mostly love dividend-paying stocks. After all, who doesn’t like a steady stream of current income along with capital appreciation?  

Even if the stock or the fund falls, higher current income would go a long way in protecting investors’ total returns. After all, dividend ETFs provide investors with avenues to make up for capital losses, if that happens at all.

Below we highlight a few dividend ETFs that have a low P/E ratio than the S&P 500 (21.70X).

ETFs in Focus

Vanguard High Dividend Yield Index ETF (VYM - Free Report) – P/E 17.70X; Yields 2.69%           

The underlying FTSE High Dividend Yield Index which is consists of common stocks of companies that pay dividends that generally are higher than average. The fund has a Zacks Rank #1 (Strong Buy).

Schwab US Dividend Equity ETF (SCHD - Free Report) – P/E 19.04X; Yields 2.83%

The underlying Dow Jones U.S. Dividend 100 Index is designed to measure the performance of high dividend yielding stocks issued by U.S. companies that have a record of consistently paying dividends, selected for fundamental strength relative to their peers, based on financial ratios. The fund charges 6 bps in fees. The fund has a Zacks Rank #3 (Hold).

SPDR S&P Dividend ETF (SDY - Free Report) – P/E 16.87X; Yields 2.81%

The underlying S&P High Yield Dividend Aristocrats Index measures the performance of the highest dividend yielding S&P Composite 1500 Index constituents that have followed a managed-dividends policy of consistently increasing dividends every year for at least 20 consecutive years. The fund has a Zacks Rank #2 (Buy). It charges 35 bps in fees.

SPDR Portfolio S&P 500 High Dividend ETF (SPYD - Free Report) – P/E 14.38X; Yields 3.95%

The underlying S&P 500 High Dividend Index is designed to measure the performance of the top 80 dividend-paying securities listed on the S&P 500 Index, based on dividend yield. The Zacks Rank #1 ETF charges 7 bps in fees.

Invesco S&P 500 High Dividend Low Volatility ETF (SPHD - Free Report) – P/E 13.85X; Yields 3.65%

The underlying S&P 500 Low Volatility High Dividend Index comprises of 50 securities traded on the S&P 500 Index that historically have provided high dividend yields and low volatility. The fund charges 30 bps in fees.

First Trust Morningstar Dividend Leaders Index Fund (FDL - Free Report) – P/E 18.85X; Yields 4.45%

The underlying Morningstar Dividend Leaders Index consists of stocks listed on one of the three major exchanges, NYSE, NYSE Amex or Nasdaq, that have shown dividend consistency and dividend sustainability. The Zacks Rank #2 fund charges 45 bps in fees.



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