Dividend investing is in vogue since the start of the year given the instability in the market and global growth concerns. The broad equity markets are currently near their record highs but uneven global economic growth, uncertain Fed policy, Brexit, U.S. election and geopolitical tensions are still weighing heavily on the market.
Meanwhile, bond yields have declined sharply boosting the demand for dividend-paying stocks. Though the Fed is on track with its gradual rate increase plan for later this year with inflation faring well and the job market strengthening, the hike will not come anytime soon.
So, investors have become defensive and shifted their focus to dividend products that provide stability and safety in a rocky market. The companies that pay dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis. The dividend paying securities are the major sources of consistent income for investors when returns from equity market are at risk (read: 5 ETFs to Buy for Q2).
While there are plenty of options in the dividend ETF world, we have highlighted seven funds from the category that are clearly outpacing the broad market indices by wide margins and have a Zacks ETF Rank of 1 (Strong Buy) or 2 (Buy), suggesting their continued outperformance. In fact, these ETFs hit fresh highs in yesterday’s trading session and are solid options for investors seeking yields in a low rate environment as well as some returns in uncertain markets.
SPDR S&P Dividend ETF (SDY - Free Report)
This is one of the popular and liquid ETFs in the dividend space with AUM of over $13.6 billion and average daily volume of more than 1 million shares. This fund provides exposure to 109 U.S. stocks that have been consistently increasing their dividends every year for at least 25 years. This can be done by tracking the S&P High Yield Dividend Aristocrats Index. Though the fund is slightly skewed toward the financial sector with 24.2%, industrials, utilities and consumer staples make up for a nice mix in the portfolio with a double-digit allocation each. The fund charges 35 bps in fees per year and yields 2.45% in annual dividend.
The ETF touched an all-time high of $83.48 per share in yesterday’s trading session, gaining about 14% so far this year. It has a Zacks ETF Rank of 2 (read: Dividend Aristocrat ETFs & Stocks Crushing the Market).
First Trust Value Line Dividend Index Fund (FVD - Free Report)
This ETF tracks the Value Line Dividend Index, giving investors exposure to about 184 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 with 24% of assets, followed by financials (18.2%), industrials (12.6%) and consumer staples (12.5%).
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 $1.9 billion in its asset base while sees good volume of more than 455,000 shares a day on average. The ETF has surged 12.7% in the year-to-date time frame and hit a fresh high of $26.81 per share. It yields 2.16% in annual dividend and has a Zacks ETF Rank of 2.
iShares Select Dividend ETF (DVY - Free Report)
This fund provides exposure to the high dividend paying U.S. equities with a 5-year history of dividend growth. It follows the Dow Jones U.S. Select Dividend Index and holds 97securities in its basket. The ETF is widely diversified across components as no single security holds more than 3.89% of total assets. However, about 31.5% of the portfolio is dominated by utilities while financials, industrials and consumer discretionary also receive double-digit exposure each.
The fund is one of the largest and popular ETF in the large cap space with AUM of $15.3 billion and average daily volume of more than 1.1 million shares. It charges 39 bps in fees per year from investors and has an annual dividend yield of 3.14%. DVY hit record high of $84.92 and has moved higher by about 13.7% in the year-to-date time period. It has a Zacks ETF Rank of 2.
First Trust Morningstar Dividend Leaders Index Fund (FDL - Free Report)
With AUM of $1.5 billion, the fund follows the Morningstar Dividend Leaders Index. In total, it holds 95 stocks that have shown the highest dividend consistency and sustainability. The top two firms – Exxon Mobil (XOM - Free Report) and AT&T (T - Free Report) – dominate the returns of the fund holding nearly 10% share each. Other firms hold less than 7% of assets. Consumer staples makes the top sector with 21.4% while utilities, telecom services, energy and industrials round off the next spots with a double-digit exposure each.
Volume is solid as it exchanges nearly 565,000 shares a day on average while expense ratio comes in at 0.45%. The fund reached its all-time high of $26.55 per share, and has added about 12.6% so far this year. It has an annual dividend yield of 3.16% and a Zacks ETF Rank of 2 (read: Dull U.S. Job Data Brighten These ETFs).
iShares Core High Dividend ETF (HDV - Free Report)
This ETF offers exposure to 73 high quality and high dividend stocks and tracks the Morningstar Dividend Yield Focus Index. It is highly concentrated on the top firm – XOM – at 9.9% while other firms hold less than 6.8% share. The product is slightly tilted toward energy with 20.8% share, closely followed by consumer staples (18.3%), healthcare (17.2%) and information technology (12.8%).
The fund is among the largest and most popular in the space with AUM of about $5.6 billion while charging 12 bps in fees per year. It trades in solid volume of more than 492,000 shares a day and sports a dividend yield of 3.53%. HDV hit its record high of $81.63 per share, representing a gain of about 12% in the year-to-date time frame. HDV has a Zacks ETF Rank of 1 (read: Maximize Return: Buy These High Yield Cheap Dividend ETFs).
PowerShares Dividend Achievers Portfolio (PFM - Free Report)
This fund has amassed $290.1 million in its asset base and trades in lower volume of around 37,000 shares a day on average. Expense ratio comes in at 0.55%. The product provides exposure to the companies that have increased their annual dividend for 10 or more consecutive fiscal years by tracking the NASDAQ US Broad Dividend Achievers Index. The fund is widely diversified across 274 securities with each accounting for no more than 4.15% share.
From a sector look, about one-fourth of the portfolio is dominated by consumer staples, while industrials (13.5%), information technology (10.9%) and energy (10.7%) round off the next three spots. PFM hit all-time high of $22.45, representing a gain of about 9.5% in the year-to-date timeframe. It has an annual dividend yield of 2.21% and a Zacks ETF Rank of 2.
WisdomTree High Dividend Fund (DHS - Free Report)
This ETF provides exposure to the high-dividend-yielding stocks by tracking the WisdomTree High Dividend Index. It holds 439 securities in its basket with moderate exposure to each security as none holds more than 5.39% of total assets. From a sector look, consumer staples, energy, financials, telecom services and utilities occupy the top positions with a double-digit exposure each.
The fund has accumulated about $1.1 billion in AUM and trades in moderate volume of 63,000 shares per day on average. It charges 38 bps in annual fees and has a dividend yield of 3.25% per annum. DHS has climbed 12.1% in the year-to-date time frame and hit an all-time high of $65.54 per share. It has a Zacks ETF Rank of 1.
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