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In a near-zero interest environment and amid a series of drastic dividend cuts, investors are seeking consistent and safe income, thereby driving the appeal for dividend investing. Additionally, volatility and market uncertainty led investors flock to dividend products.
Dividend-focused products offer both 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 equity markets are at risk. Further, these products are proven outperformers over the long term (read: Here's Why Dividend Growth ETFs Make a Smarter Pick Now).
While there are plenty of options in the dividend ETF world, honing in on the dividend aristocrats could be the most beneficial way in the current market environment.
Why Dividend Aristocrats?
Dividend aristocrats are the blue-chip dividend-paying companies with a long history of raising dividend payments year over year. These generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis. Additionally, aristocrats 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. Further, these products lead to a healthy portfolio with a greater scope of capital appreciation as opposed to the simple dividend paying stocks or those with high 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. For them, we have highlighted some popular ETFs that could be excellent choices:
This is the largest and most-popular ETF in the dividend space with AUM of $41.1 billion. 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 188 securities in the basket with none accounting for more than 5.9% share. The fund charges 8 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Is Fear for Dividend Cuts Overblown? ETFs to Benefit).
With AUM of $14.8 billion, this fund provides well-diversified exposure to 119 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. Each firm accounts for less than 2.5% of assets. The fund charges 35 bps in fees and 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 companies with a consistent 5-year history of dividend payments. It follows the Dow Jones U.S. Select Dividend Index and holds 92 securities in its basket with each accounting for less than 3% of assets. The ETF has AUM of $12.7 billion and charges 39 bps in fees per year from investors. It has a Zacks ETF Rank #3 with a Medium risk outlook.
With AUM of $11.1 billion, this product offers exposure to 97 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 5.9% of assets. It charges 6 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook (read: Guide to 10 Most Popular Dividend ETFs).
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 $9.2 billion in its asset base and charges 8 bps in fees per year. It has a Zacks ETF Rank #2 with a Medium risk outlook.
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 64 securities in its basket, with each accounting for less than 2.3% share. NOBL has amassed $5.5 billion in its asset base. It has an expense ratio of 0.35% and has a Zacks ETF Rank #3 with a Medium risk outlook.
WisdomTree U.S. Quality Dividend Growth Fund (DGRW - Free Report)
This fund tracks the WisdomTree U.S. Quality Dividend Growth Index and offers diversified exposure to U.S. dividend-paying stocks with both growth and quality characteristics like long-term earnings growth expectations, and three-year historical averages for return on equity and return on assets. It has gathered $3.1 billion in its asset base and charges 28 bps in fees per year from investors. The ETF holds 270 securities in its basket, with each accounting for no more than 5.6% share. It has a Zacks ETF Rank #3 with a Medium risk outlook.
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A Quick Guide to Dividend Aristocrat ETFs
In a near-zero interest environment and amid a series of drastic dividend cuts, investors are seeking consistent and safe income, thereby driving the appeal for dividend investing. Additionally, volatility and market uncertainty led investors flock to dividend products.
Dividend-focused products offer both 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 equity markets are at risk. Further, these products are proven outperformers over the long term (read: Here's Why Dividend Growth ETFs Make a Smarter Pick Now).
While there are plenty of options in the dividend ETF world, honing in on the dividend aristocrats could be the most beneficial way in the current market environment.
Why Dividend Aristocrats?
Dividend aristocrats are the blue-chip dividend-paying companies with a long history of raising dividend payments year over year. These generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis. Additionally, aristocrats 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. Further, these products lead to a healthy portfolio with a greater scope of capital appreciation as opposed to the simple dividend paying stocks or those with high 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. For them, we have highlighted some popular ETFs that could be excellent choices:
Vanguard Dividend Appreciation ETF (VIG - Free Report)
This is the largest and most-popular ETF in the dividend space with AUM of $41.1 billion. 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 188 securities in the basket with none accounting for more than 5.9% share. The fund charges 8 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Is Fear for Dividend Cuts Overblown? ETFs to Benefit).
SPDR S&P Dividend ETF (SDY - Free Report)
With AUM of $14.8 billion, this fund provides well-diversified exposure to 119 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. Each firm accounts for less than 2.5% of assets. The fund charges 35 bps in fees and 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 companies with a consistent 5-year history of dividend payments. It follows the Dow Jones U.S. Select Dividend Index and holds 92 securities in its basket with each accounting for less than 3% of assets. The ETF has AUM of $12.7 billion and charges 39 bps in fees per year from investors. It has a Zacks ETF Rank #3 with a Medium risk outlook.
Schwab U.S. Dividend Equity ETF (SCHD - Free Report)
With AUM of $11.1 billion, this product offers exposure to 97 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 5.9% of assets. It charges 6 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook (read: Guide to 10 Most Popular Dividend 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. It holds 478 stocks in its basket with each accounting for less than 3.5% share. The fund has accumulated $9.2 billion in its asset base and charges 8 bps in fees per year. It has a Zacks ETF Rank #2 with a Medium risk outlook.
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 64 securities in its basket, with each accounting for less than 2.3% share. NOBL has amassed $5.5 billion in its asset base. It has an expense ratio of 0.35% and has a Zacks ETF Rank #3 with a Medium risk outlook.
WisdomTree U.S. Quality Dividend Growth Fund (DGRW - Free Report)
This fund tracks the WisdomTree U.S. Quality Dividend Growth Index and offers diversified exposure to U.S. dividend-paying stocks with both growth and quality characteristics like long-term earnings growth expectations, and three-year historical averages for return on equity and return on assets. It has gathered $3.1 billion in its asset base and charges 28 bps in fees per year from investors. The ETF holds 270 securities in its basket, with each accounting for no more than 5.6% share. It has a Zacks ETF Rank #3 with a Medium risk outlook.
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 >>