Dividend-focused ETFs are highly coveted given investors’ drive for higher income. In particular, the expectation of a ‘dovish stance’ on future rate hikes in the June Fed meeting has given a boost to demand for dividend-paying stocks.
Additionally, while the stock market is touching new highs, the latest bout of downbeat economic data, growing geopolitical tension, political uncertainty, doubts over the implementation of Trump’s plans and expensive valuation have resulted in risk aversion. Given this, investors are becoming defensive and shifting their focus to products that provide stability and safety in a rocky market (read: Time to Buy Global Low Volatility ETFs?).
Dividend products offer both of these world’s -- safety in the form of payouts and stability in the form of mature companies that are less volatile to the large swings in stock prices. The dividend-paying securities are major sources of consistent income for investors when returns from the equity market are at risk. This is especially true as 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.
As a result, we have highlighted some ETFs that offer better dividend growth opportunities 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 trading session and have the potential to move higher given that the Fed is most likely to remain dovish at its meeting. Further, these have a favorable Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook (read: If Fed Maintains Dovish Outlook, Profit from These ETFs).
iShares Core Dividend Growth ETF (DGRO - Free Report)
This fund provides exposure to companies having a history of consistently growing dividends by tracking the Morningstar US Dividend Growth Index. Holding 432 stocks in its basket, the fund has a well-diversified exposure across various securities and sectors with none holding more than 3.12% share, and information technology, healthcare, financials, consumer staples, industrials and consumer discretionary are the top sectors with a double-digit allocation each. The fund has AUM of $1.7 billion and trades in good volumes of about 508,000 shares. It charges 8 bps in fess per year and has an annual dividend yield of 2.09%. The ETF hit its all-time high of $31.58 per share, representing a gain of about 9.8% in the year-to-date time frame.
SPDR S&P Dividend ETF (SDY - Free Report)
This is one of the popular and liquid ETFs in the dividend space with AUM of $15.7 billion and average daily volume of 735,000 shares. This fund provides a well-diversified exposure to 109 U.S. stocks that have been consistently increasing their dividends every year for at least 20 years. This can be done by tracking the S&P High Yield Dividend Aristocrats Index. Additionally, financials, industrials, consumer staples, utilities and consumer discretionary 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 2.44% in annual dividend. The ETF touched an all-time high of $90.75 per share, and has returned about 6.6% so far this year (read: Don't Sell, Buy 4 High Dividend ETFs Under $20 in May).
First Trust Value Line Dividend Index Fund (FVD - Free Report)
This ETF tracks the Value Line Dividend Index, giving investors exposure to about 185 companies that have a Value Line Safety Ranking of #1 or 2. 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 22.8% of assets, followed by financials (17.7%), consumer staples (13.8%) and industrials (12.3%). 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 $3.6 billion in its asset base while sees solid volume of about 644,000 shares a day on average. The ETF has gained 6.6% in the year-to-date time frame and hit a fresh high of $29.76 per share. It yields 1.99% in annual dividend.
ProShares S&P 500 Aristocrats ETF (NOBL - Free Report)
This product provides exposure to companies that raised dividend payments annually for at least 25 years by tracking the S&P 500 Dividend Aristocrats. It holds 51 securities in its basket with a tilt toward consumer staples firms that account one-fourth of the portfolio. Other sectors, namely industrials, healthcare, consumer discretionary and financials receive a double-digit exposure each. NOBL has amassed $3.1 billion in its asset base and trades in a volume of around 300,000 shares a day on average. It has an expense ratio of 0.35% and has annual dividend yield of 1.94%. The fund reached its all-time high of $58.70 per share, and has added 9.2% so far this year (read: An Investor's Guide to Dividend Aristocrat ETFs).
Vanguard Dividend Appreciation ETF (VIG - Free Report)
This is the largest and most popular ETF in the dividend space with AUM of $24.7 billion and average daily volume of about 739,000 shares. The fund follows the NASDAQ US Dividend Achievers Select Index, which is composed of high quality stocks that have a record of growing dividends year over year. It holds 188 securities in the basket with none accounting for more than 4.2% share. However, it has a definite tilt toward industrials at 31.5% while consumer services, consumer goods and healthcare round off the next three spots. The ETF charges 8 bps in annual fees while its dividend yield comes at 1.95%. It scaled a fresh high of $94.30 per share, and has gained 11.2% in the year-to-date time frame.
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