Amid a low interest rate environment and volatility in the stock market, dividend investing seems to be the best bet 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.
The dividend-focused products offer safety through payouts, and stability in the form of mature companies that are less volatile to large swings in stock prices. This is because 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 (read: Are U.S. Assets Acting as Safe Havens? ETFs in Focus).
Current Market Trends
The stock market is currently hitting new record highs on positive news surrounding the U.S.-China relationship and China stimulus package. China has pledged to halve tariffs on some $75 billion of U.S. imports, beginning Feb 14, as part of its phase-one trade deal with the United States. Tariffs on some U.S. goods will be cut to 5% from 10%, while levies on some other items will be reduced to 2.5% from 5%, per China’s Ministry of Finance. Also, the People’s Bank of China has injected $1.7 trillion yuan ($242.9 billion) into the economy this month.
On the domestic front, the labor market was off to a strong start in 2020, creating 225,000 new jobs in January. The manufacturing sector, which had languished in contraction territory for five months, rebounded strongly in January while services sector activity also picked up, with industries reporting increases in new orders. The solid data suggests that the economy could continue to grow moderately this year. However, Middle East tensions, trade uncertainty and U.S. presidential elections continue to weigh on the stocks (read: 3 Sector ETFs & Stocks to Win on Upbeat January Jobs Data).
Additionally, the Federal Reserve hinted at keeping interest rates steady at 1.5-1.75% in 2020 after three rates cut last year. This has raised the appeal of dividend strategies.
Dividend Payments on Rise
The companies on the S&P 500 are expected to return money to shareholders through dividends more 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 dividends based on their history and financial condition. 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 (read: 7 Dividend ETFs That Offer Growth in 2020).
Here, we have highlighted 10 most popular dividend ETFs for investors seeking yields and returns irrespective of stock market directions.
Vanguard Dividend Appreciation ETF (VIG - Free Report)
This is the largest and most popular ETF in the dividend space with AUM of $43.9 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 dividend every year. It holds 182 securities in the basket with none accounting for more than 4.8% share. The fund charges 6 basis points (bps) in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: IMF Cuts Global Growth Outlook: 5 ETF Areas to Bet On).
Vanguard High Dividend Yield ETF (VYM - Free Report)
This fund provides exposure to the high-yielding dividend stocks by tracking the FTSE High Dividend Yield Index. Holding 400 securities, the product is pretty well spread out across components as each holds no more than 4% of the assets. It has amassed $30.2 billion in its asset base while trading in volume of 1.2 million shares a day on average. Expense ratio is 0.06%. VYM has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
iShares Select Dividend ETF (DVY - Free Report)
This fund provides exposure to the high dividend-paying U.S. equities with a five-year history of dividend growth. It follows the Dow Jones U.S. Select Dividend Index and holds 100 securities in its basket with each accounting for less than 2.6% of assets. The ETF has AUM of $18.6 billion and average daily volume of more than 531,000 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 $19.8 billion and average daily volume of 516,000 shares, this fund provides a well-diversified exposure to 119 U.S. stocks that have been consistently increasing dividends every year for at least 20 years. This can be done by tracking the S&P High Yield Dividend Aristocrats Index. Each firm accounts for less than 2.4% of the assets. 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)
This product offers exposure to 118 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 is well spread across components with none holding more than 5.2% of assets. It charges 6 bps in annual fees and trades in solid volume of about 829,000 shares a day. It has AUM of $12.1 billion and a Zacks ETF Rank #3 with a Medium risk outlook.
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 478 stocks in its basket with each accounting for less than 3.5% share. The fund has accumulated $11 billion in its asset base and trades in solid volumes of about 1.4 million shares. It charges 8 bps in fess per year and has a Zacks ETF Rank #2 with a Medium risk outlook (read: Dividend Growth ETFs to Play as Coronavirus Wreaks Havoc).
First Trust Value Line Dividend Index Fund (FVD - Free Report)
This ETF tracks the Value Line Dividend Index, giving investors exposure to 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. The fund is a bit pricier than many other products in the dividend space, charging investors 70 bps a year in fees. It holds 202 securities in its basket and has accumulated $10.4 billion in its asset base. The ETF sees solid volume of about 1.3 million shares a day on average. It has a Zacks ETF Rank #3 with a Medium risk outlook.
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 slightly concentrated on the top firms. HDV has AUM of $7.5 billion and trades in a solid volume of around 313,000 shares a day. It charges 8 bps in fees per year and has a Zacks ETF Rank #3 with a Medium risk outlook (read: 5 Winning ETF Strategies for 2020).
ProShares S&P 500 Aristocrats ETF (NOBL - Free Report)
This product provides exposure to companies that have raised dividend payments annually for at least 25 years by tracking the S&P 500 Dividend Aristocrats. It holds 57 securities in its basket with each accounting for less than 2% share. NOBL has amassed $6.7 billion in its asset base and trades in a volume of around 503,000 shares a day on average. It has an expense ratio of 0.35% and a Zacks ETF Rank #3 with a Medium risk outlook.
iShares International Select Dividend ETF (IDV - Free Report)
This product offers exposure to established, high-quality international companies that have provided consistently high dividend yields over time. It tracks the Dow Jones EPAC Select Dividend Index and holds 97 stocks in its basket with none accounting for more than 4.5% share. Country wise, the United Kingdom and Australia take the top two spots with 23.4% and 15.1% share, respectively, while others make up for single-digit allocation each. IDV has amassed $5.1 billion in its asset base while trading in volume of 793,000 shares per day on average.
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