Dividend-focused ETFs have been gaining immense popularity and are riding high on investors’ drive for higher income. This is especially true as bond yields have declined sharply since the start of the year. Though the Fed may raise interest rates later this year given that inflation is faring well and the job market is strengthening consistently, the rate hike will not come in the two-day FOMC meeting slated to start today.
The expectation of ‘no rate hike in March’ has boosted the demand for dividend-paying stocks. Further, most of the dividend paying companies are stable and mature with solid cash flows that provide greater stability and safety in a volatile environment. And while the U.S. stock market completed its seven-year Bull Run, a host of challenges kept cropping up and threatened the longevity of the uptrend (read: 7 Best Stocks & ETFs of 7-Year Bull Run).
In such a scenario, the companies that pay dividends generally act as a hedge against economic uncertainty. In particular, quality dividend ETFs are leading the market, reaching fresh highs ahead of the Fed meeting. This is because these funds include baskets of stocks that have a long track of profitability, a track of raising dividend year over year with prospects of further increases, good liquidity, and some value characteristics.
As a result, we have highlighted some of the ETFs that offer better dividend growth opportunities when compared to other products in the space but might not necessarily have the highest yields. These funds hit their all-time highs in the last couple of trading sessions and have the potential to move higher given that the Fed is most likely to remain dovish at its meeting and uncertainty will rule the market.
PowerShares S&P 500 High Dividend Portfolio (SPHD - Free Report)
This fund follows the S&P 500 Low Volatility High Dividend Index and holds 50 securities, which have historically offered high dividend yields and low volatility. It is widely spread out across individual securities as each holds less than 3.6% of assets. From a sector look, financials takes the top spot at 20.6% while utilities, industrials and consumer discretionary round off the next three with a double-digit exposure each. The fund has so far managed assets worth $1 billion while volume is solid, trading at around 307,000 shares per day.
It charges 30 bps in annual fees and has an annual dividend yield of 3.27%. The ETF hit its all-time high of $36.45 per share in yesterday’s trading session, representing a gain of about 11.5% over the past one month (read: How to Play the Choppy Market with Cheap Smart Beta ETFs).
First Trust Value Line Dividend Index Fund (FVD - Free Report)
This ETF tracks the Value Line Dividend Index, giving investors exposure to about 189 companies that have a Value Line Safety Ranking of #1 or #2. Value Line selects those companies that have a higher-than-average dividend yield as compared with the indicated dividend yield of the Standard & Poor's 500 Composite Stock Price Index. This results in an equal-weight approach for individual securities albeit with some concentration risk from a sector look. Utilities takes the top spot at 23.1% of assets, followed by financials (17.7%), industrials (14.4%) and consumer staples (11.6%).
The fund is a bit pricier than many other products in the dividend space, charging investors 70 bps a year in fees. It has accumulated $1.4 billion in its asset base while sees good volume of more than 275,000 shares a day on average. The ETF gained 7.3% in the trailing one-month period and hit an all-time high of $25.33 per share in Friday’s trading session. It yields 2.20% in annual dividend and has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook.
First Trust Morningstar Dividend Leaders Index Fund (FDL - Free Report)
With AUM of $1.1 billion, the fund follows the Morningstar Dividend Leaders Index. In total, it holds 97 stocks that have shown the highest dividend consistency and dividend sustainability. The top two firms – AT&T (T - Free Report) and Exxon Mobil (XOM - Free Report) – dominate the returns of the fund holding over 9% share each. Other firms hold less than 8% of assets. Volume is solid as it exchanges nearly 365,000 shares a day on average while expense ratio comes in at 0.45%.
The fund reached its all-time high of $25.35 per share on Friday, and has added about 5.6% over the past one month. It has an annual dividend yield of 3.42% and a Zacks ETF Rank of 2 with a Medium risk outlook (read: 3 Dividend ETF Winners Year to Date).
O'Shares FTSE US Quality Dividend ETF (OUSA - Free Report)
This fund provides investors’ cost efficient access to a portfolio of large-cap and mid-cap, high-quality, low-volatility dividend paying companies in the United States selected on fundamental metrics including quality, low volatility and dividend yield. This is easily done by tracking the FTSE US Qual/Vol/Yield Factor 5% Capped Index. Holding 144 stocks in its basket, the ETF is well spread across components with none holding more than 5.26% of assets. From a sector look, consumer goods, industrials, healthcare and energy are the top four sectors accounting for a double-digit allocation each (read: 6 Quality Dividend ETFs for Safety and Income).
The fund has accumulated $100.1 million in its asset base since its inception in July 2015 and trades in a small volume of 55,000 shares a day on average. Expense ratio came in at 0.48%. OUSA has a dividend yield of 1.30% per annum and was up 7% over the past month. The product scaled a fresh high of $26.03 per share yesterday.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>