In a low interest rate environment, dividend investing has been the hot spot and seems an excellent choice for 2020. Though the strategy doesn’t offer dramatic price appreciation, it is a major source of consistent income for investors in any type of market.
Below we highlight some solid reasons to invest in this strategy:
Uneven Stock Market Rally
The stock market is currently hitting new record highs but 2020 is likely to be filled with volatility backed by Middle East tensions, trade uncertainty and U.S. presidential election. The dividend-focused products offer safety in the form of payouts and stability in the form of mature companies that are less volatile to large swings in stock prices (read: Dividend Growth ETFs to Benefit as Middle-East Conflict Rises).
Additionally, the Fed vowed to keep interest rates steady in 2020 after three rates cut last year. This has raised the appeal for dividend strategies.
Dividend Payout to Top $500 Billion
The companies on the S&P 500 are expected to return more money to shareholders through dividends than ever this year. Per Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, the dividend payout is expected to top $500 billion for the first time. At least 330 companies on the index are expected to raise their dividends based on their history and financial condition. Among the companies that recently announced plans to raise their dividends are Pfizer Inc. (PFE - Free Report) , Abbott Laboratories (ABT - Free Report) and AT&T Inc (T - Free Report) .
Notably, the first quarter is typically the busiest period for dividends as companies roll out their annual results and reward shareholders ahead of their annual meetings.
Solid Inflow in Q4
Investors have been showing interest in dividend strategies. In the fourth quarter, they added more than $10 billion in new money to dividend-focused ETFs, the highest period of inflows for 2019, according to Todd Rosenbluth, head of ETF and mutual-fund research at CFRA (read: 10 ETFs That Have Been Investors' Favorites).
Invest in Dividend Growth
Although dividends have increased, the yields dropped to 1.80% at year-end 2019 from 2.16% at the beginning as the S&P 500 surged 29%, according to FactSet. As such, honing in on dividend aristocrats could be the most beneficial way.
Dividend aristocrats are the blue-chip dividend-paying companies, which have a long history of raising dividend payments year over year. These tend to skew the portfolio to less-volatile sectors and mature companies. Investors should note that the dividend aristocrat funds offer more dividend growth opportunities when compared to the other products in the space but might not necessarily have the highest yields. As a result, these products provide a nice combination of annual dividend growth and capital appreciation opportunity and are mainly suitable for risk–adverse, long-term investors.
How to Play?
Below we have presented a bunch of dividend aristocrats ETFs that have a Zacks ETF Rank #1 (Strong Buy) or 2 (Buy) or 3 (Hold).
Vanguard Dividend Appreciation ETF (VIG - Free Report)
This is the largest and most-popular ETF in the dividend space with AUM of $42.2 billion and average daily volume of about 1.1 million shares. The fund follows the NASDAQ US Dividend Achievers Select Index, which is composed of high-quality stocks that have a record of raising dividends every year. It holds 182 securities in the basket and charges 6 bps in annual fees. VIG has a Zacks ETF Rank #1 with a Medium risk outlook (read: 5 ETFs to Profit From Rise in Middle East Tension).
iShares Core Dividend Growth ETF (DGRO - Free Report)
This fund provides exposure to companies having a history of sustained dividend growth by tracking the Morningstar US Dividend Growth Index. Holding 478 stocks in its basket, the fund has AUM of $10.4 billion and trades in good volumes of about 1.3 million shares. It charges 8 bps in fees per year and has a Zacks ETF Rank #2 with a Medium risk outlook.
iShares Select Dividend ETF (DVY - Free Report)
This fund provides exposure to the companies with a consistent 5-year history of dividend payments. It follows the Dow Jones U.S. Select Dividend Index and holds 100 securities in its basket. The ETF has AUM of $18.5 billion and average daily volume of around 499,000 shares. It charges 39 bps in fees per year from investors and has a Zacks ETF Rank #3 with a Medium risk outlook.
SPDR S&P Dividend ETF (SDY - Free Report)
With AUM of $19.7 billion and average daily volume of 481,000 shares, this fund provides a well-diversified exposure to 112 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. The fund charges 35 bps in fees and has a Zacks ETF Rank #3 with a Medium risk outlook.
Schwab U.S. Dividend Equity ETF (SCHD - Free Report)
With AUM of $11.7 billion, this product offers exposure to 113 high-dividend yielding U.S. companies that have a record of consistent dividend payments 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 charges 6 bps in annual fees and trades in solid volume of around 782,000 shares a day. It has a Zacks ETF Rank #3 with a Medium risk outlook (read: Best ETF Strategies for 2020).
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 Index. It holds 58 securities in its basket and charges 35 bps in annual fees. NOBL has amassed $6.5 billion in its asset base and trades in a volume of around 459,000 shares a day on average. It has a Zacks ETF Rank #3 with a Medium risk outlook.
First Trust NASDAQ Rising Dividend Achievers ETF (RDVY - Free Report)
This fund provides exposure to a diversified portfolio of 51 companies with a history of paying dividends. It tracks the NASDAQ US Rising Dividend Achievers Index, charging investors 50 bps in annual fees. The ETF has accumulated $1.2 billion in its asset base and sees a good volume of 2020,000 shares a day on average. It has a Zacks ETF Rank #2 with a Medium risk outlook (read: 5 Dividend ETFs That Beat S&P 500 in 2019).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>