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Top-Ranked Dividend ETFs Crushing the Market

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Dividend investing is in vogue once again given rounds of weak data across the globe that have renewed global growth concerns. Additionally, a warning from the top American trade negotiator that tariffs on Chinese goods may not be rolled back will weigh on the stock market. Against such a backdrop, investors are becoming defensive and shifting their focus to products that provide stability and safety in a rocky market.

Meanwhile, bond yields have declined sharply boosting demand for dividend-paying stocks. This is because the Fed is not in a hurry to raise interest rates for this year (read: 6 Dividend ETFs That Beat S&P 500 in the 10-Year Bull Run).

Why Dividend Investing?

Even though dividend stocks don’t offer much price appreciation in a rising stock market, they offer a steady stream of income along with the potential of capital gains. Dividend-focused products offer 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.

Dividend-paying securities are the major sources of consistent income for investors to create wealth when returns from the equity market are at risk. The companies that pay out dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.
Further, research shows that dividend stocks often outperform their non-dividend paying counterparts over longer periods. According to Chicago-based Greenrock Research, a portfolio with the top 20% of the S&P 500 companies ranked by dividend yield and weighted by market capitalization, outperformed the overall S&P 500 by 2.13 percentage points annually from 1995 to 2018.

How to Play?

While there are several ETFs available in the space, we have highlighted five that are clearly outpacing the broad market indices by wide margins and have a Zacks ETF Rank #1 (Strong Buy) or 2 (Buy), suggesting further outperformance in the months ahead. These have potentially superior weighting methodologies that could allow these to lead the dividend space in the months ahead. Additionally, these funds are popular and liquid enough, making compelling choices for investors seeking a nice momentum play with lower risk (read: 5 Hot Dividend ETFs Worth Buying Now).

SPDR Portfolio S&P 500 High Dividend ETF (SPYD - Free Report)

This fund provides exposure to stocks with a high level of dividend income and the opportunity for capital appreciation by tracking the S&P 500 High Dividend Index. Holding 80 stocks in its basket, the fund is well-diversified across securities with each making up for less than 2% of assets. It is slightly skewed toward real estate at 21.3%, closely followed by consumer discretionary (14.4%), utilities (12.8%) and energy (11.3%). The fund has AUM of $1.3 billion and trades in volume of about 519,000 shares. It charges 7 bps in annual fees and has gained 12% so far this year. The product has a Zacks ETF Rank of #1 with a Medium risk outlook.   

O'Shares FTSE US Quality Dividend ETF (OUSA - Free Report)

This fund tracks the FTSE US Qual/Vol/Yield Factor 5% Capped Index, which measures the performance of publicly-listed large-capitalization and mid-capitalization dividend-paying issuers in the United States. Holding 139 stocks in its basket, the ETF is well spread across components with none accounting for more than 5.1% of assets. From a sector look, consumer goods, healthcare, industrials, technology and consumer services are the top four sectors accounting for a double-digit allocation each. The fund has accumulated $452.8 million in its asset base and trades in an average daily volume of 167,000 shares a day on average. Expense ratio came in at 0.48%. OUSA has risen 11.1% in the year-to-date timeframe and has a Zacks ETF Rank of 1 with a Medium risk outlook.

Schwab U.S. Dividend Equity ETF (SCHD - Free Report)

With $8.8 billion, this product offers exposure to 116 high-dividend yielding U.S. companies that have a track of consistent dividend payouts supported by fundamental strength based on financial ratios and ample liquidity. This can be easily done by tracking the Dow Jones U.S. Dividend 100 Index. The fund is well spread across components, with none holding more than 4.8% of assets. Consumer staples and information technology take the top two spots at 22.8% and 20.1%, respectively, while industrials and consumer discretionary rounded off the next two spots. It charges 6 bps in annual fees and trades in solid volume of about 1.2 million shares a day. It has added 11% so far this year and a Zacks ETF Rank #2 with a Medium risk outlook (read: Is Market Overvalued? 5 Cheap Top-Ranked ETFs to Play).

iShares Core High Dividend ETF (HDV - Free Report)

This ETF offers exposure to 75 high-quality and high-dividend stocks, and tracks the Morningstar Dividend Yield Focus Index. It is concentrated on the top firm with double-digit exposure while other firms hold less than 7.1% share each. Energy, consumer staples and healthcare are the top three sectors. HDV is among the largest and most-popular funds in the space with an AUM of $7 billion and trades in a solid volume of around 835,000 shares a day. It charges 8 bps in fees per year and has gained 10.8% so far this year. It has a Zacks ETF Rank #2 with a Medium risk outlook (read: Dividend ETF Hits New 52-Week High).

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. It holds 479 stocks in its basket with each accounting for less than 3.1% share. The fund has amassed $6.4 billion in its asset base and trades in solid volumes of about 1.7 million shares. It charges 8 bps in fess per year and has a Zacks ETF Rank #1 with a Medium risk outlook. DGRO is up 10.5% in the same timeframe.

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