ETFs that offer healthy returns through impressive price performances and have favorable dividend yields are always in demand. Though the major benchmarks hit all-time record levels recently, the markets are still shaky. In such a situation, steady dividend yield may protect one’s portfolio from getting less affected as it helps to reduce the impact of negative price movement.
Moreover, when the markets are rallying, investors can expect greater returns in addition to steady dividends. Thus, ETFs with impressive dividend yields are poised to provide healthy returns irrespective of market movements (read: ETF Strategies for 2H).
Benchmarks Hitting Record Highs But Concerns Remain
The major benchmarks registered their all-time highs in recent times on the back of encouraging second-quarter earnings results and a recovering U.S. economy. Some of the major sectors including technology and medical came up with better-than-expected numbers. Earnings for the S&P 500 sectors are expected to decline 3.5% on 0.4% lower revenues, which compares favorably with the first quarter’s 6.5% decline in earnings on 0.9% lower revenues.
Moreover, the employment data for the U.S. remained bullish for the second successive month in July, dropping hints of the underlying strength in the economy. The economy added 255,000 jobs in July, following an upwardly revised reading of 292,000 job additions for the month of June. Wages also increased for the second successive month after increasing in June. In July, wages rose 0.3% while increasing 2.6% on a yearly basis (read: U.S. Job Growth Momentum Continues: ETFs to Buy).
However, strong labor data raised chances of a rate hike in September and had a negative impact on investor sentiment. Moreover, the crude market recently entered into the bear territory led by oversupply concerns and weak global demand. While data released by China’s General Administration of Customs showed that oil export jumped 52.3% year over year in July to a record 4.57 million tons, weak demand led China’s imports of oil products to slump 13% from the year-ago level to 2.08 million tons.
Why Dividend ETFs?
It is now a little difficult to predict the movements of the markets in the coming days as investors remain confused about the rate hike path and oil price movements. Also, analysts expect volatility to aggravate in light of the U.S. presidential election in November. This is where dividend ETFs comes into play.
These ETFs also reflect a solid financial structure and healthy underlying fundamentals, and are unperturbed by market turbulence and economic uncertainty. Moreover, dividend ETFs are poised to attract investor attention in an environment in which a large numbers of government bonds are suffering from low and negative yields (read: Technology Dividend ETFs for Growth & Income).
3 Dividend ETFs to Buy
Against this encouraging backdrop, we have highlighted three dividend ETFs that also have a Zacks ETF Rank #2 (Buy) with a Medium risk outlook. These ETFs also provided healthy returns over the three-month and year-to-date periods.
Vanguard Dividend Appreciation ETF (VIG - Free Report)
This popular fund manages over $22.4 billion in its asset base and provides exposure to a basket of 185 high quality stocks that have a record of increasing dividends over the past decade by tracking the NASDAQ US Dividend Achievers Select Index. The product sees solid volume of about 928,000 shares and charges 9 bps in annual fees. The fund has the highest allocation to industrials currently while consumer goods and consumer services round out the top three. The ETF gained 3.9% and 10% over the three-month and year-to-date periods, respectively. The fund has anannual dividend yield of 2.1% (read: Face-Off: Dividend Growth & Buyback ETF).
iShares Select Dividend (DVY - Free Report)
This is one of the popular and liquid ETFs in the dividend space with AUM of $16.2 billion and average daily volume of about 1 million shares. This fund provides exposure to 94 stocks that have been consistently increasing their dividend by tracking the iShares Dow Jones Select Dividend Index. Though the fund is slightly skewed toward the utilities sector with 29.8% share, financials, industrials and consumer discretionary make up for a nice mix in the portfolio with a double-digit allocation each. The fund charges 39 bps in fees per year and yields 3.1% in annual dividend. The ETF gained 5% and 15.2% over the three-month and year-to-date periods, respectively.
SPDR S&P Dividend ETF (SDY - Free Report)
Another popular choice in the dividend space, SDY, provides exposure to the 109 U.S. stocks that have been consistently increasing their dividend annually for at least 25 years. This can be done by tracking the S&P High Yield Dividend Aristocrats Index. The fund has the highest allocation to financials currently while industrials and consumer staples round out the top three. The fund has amassed about $14.5 billion in its asset base and trades in heavy volume of about 838,000 shares. Expense ratio comes in at 0.35% and it has an annual dividend yield of 2.4%. The ETF gained 5.1% and 16.9% over the three-month and year-to-date periods, respectively.
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