Yahoo Finance Is it Time to Tap Dividend ETFs for Reliable Gains?
Dividend investing, which was once a strong performer, has recently faced challenges. In 2022, dividends, value, and low-volatility strategies provided protection during the bear market in global equities. However, the situation has reversed in 2023.
Quality-focused factor investing and ETFs targeting quality dividends have performed relatively better than strategies focused on dividend growth and high yield. Investments excluding AI, tech, growth, high beta, or mega-caps have struggled to keep pace.
Lets’ consider dividend ETFs as a reliable investment option in an unpredictable year. These include Vanguard Dividend Appreciation ETF VIG, Schwab US Dividend Equity ETF SCHD, iShares Select Dividend ETF DVY, SPDR S&P Dividend ETF SDY and ProShares S&P 500 Dividend Aristocrats ETF NOBL.
Why Have Investors Turned Away From Dividend Stocks?
As reported by TheStreet, technology stocks continued to thrive all throughout May, overshadowing other sectors. Due to its association with the tech sector, communications services got a boost. Consumer discretionary benefited from investor enthusiasm toward growth stocks. However, all other sectors significantly lagged the S&P 500 Index.
Investors are captivated by the potential of AI to lower expenses and elevate product offerings, fueling visions of a remarkable technology supercycle. Microsoft, a ChatGPT investor, has witnessed a 38% surge in its shares in 2023, while Nvidia has soared approximately 166%, as optimism grows around increased demand for its chips driven by AI, propelling the company to the trillion-dollar market capitalization club.
Currently, investor focus is solely on AI and stocks poised to capitalize on this expanding trend. Market sentiment appears to be driven by a sense of mania, suggesting that these stocks may continue their upward trajectory before potentially experiencing a significant correction later in the year.
Is This a Good Time to Bet on Dividend Funds?
The current year poses challenges for investors. The stock market has the potential to rebound strongly and experience a remarkable rally. However, the persistence of high interest rates and lingering inflation may collaborate to exert downward pressure on stock prices.
In a gradually unfolding recessionary climate and an uncertain economic environment, dividend ETFs often serve as a reliable choice. However, it is important to note that the turnaround may take some time to materialize.
The current uncertainty surrounding AI laws and regulations, coupled with the potential for AI hype-induced market fluctuations, makes it wise to consider the benefits of investing in dividend-paying stocks and funds. By focusing on this theme, investors can safeguard their capital and enjoy stability through consistent pay-outs.
Mature companies, less susceptible to market swings, offer an added layer of protection. Embracing dividend-paying funds as a strategy can acts as a hedge against economic uncertainty and provides downside protection
ETFs in Focus
Now, let's dive deeper into the specifics of the above mentioned ETFs:
Vanguard Dividend Appreciation ETF (VIG)
Vanguard Dividend Appreciation ETF closely tracks the performance of the S&P U.S. Dividend Growers Index, which consists of common stocks of companies that have a record of increasing dividends over time.
With a basket of 314 securities the fund has a major allocation to the information technology, financials and health-care sectors with each having a share of 20.49%, 17.99% and 16.3%, respectively.
With a dividend yield of 1.98%, the fund charges an annual fee of 0.06%. Vanguard Dividend Appreciation ETF has gathered an asset base of $65.54 billion and currently has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook. The fund has generated 2.26% year to date and is up 3.73% over the past year.
Schwab US Dividend Equity ETF (SCHD)
Schwab US Dividend Equity ETF closely tracks the performance of the Dow Jones U.S. Dividend 100 Index, which is designed to measure the performance of high dividend-yielding stocks issued by U.S. companies that have a record of consistently paying dividends.
The fund has a basket of 104 securities with industrials, health-care and financials taking the top spot having a share of 17.77%, 16.26% and 14.08%, respectively.
SCHD has a dividend yield of 3.79% and charges an annual fee of 0.06%. Schwab US Dividend Equity ETF has amassed an asset base of $45.31 billion and currently has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook. The fund has fallen 6.72% year to date and 6.99% over the past year.
iShares Select Dividend ETF (DVY)
iShares Select Dividend ETF seeks to track the investment results of the Dow Jones U.S. Select Dividend Index, which measures the performance of a selected group of equity securities issued by companies that have provided relatively high dividend yields on a consistent basis over time.
DVY has a basket of 99 securities and has major allocations to utilities, financials and consumer staples sector having a share of 28.51%, 21.91% and 10.595%, respectively.
iShares Select Dividend ETF has a dividend yield of 3.91% and charges an annual fee of 0.38%. The fund commands an asset base of $19.58 billion and has a Zacks ETF Rank #2 with a Medium risk outlook. DVY has lost 8.81% year to date and 12.67% over the past year.
SPDR S&P Dividend ETF (SDY)
SPDR S&P Dividend ETF seeks to closely track the performance of the S&P High Yield Dividend Aristocrats Index. The S&P High Yield Dividend Aristocrats Index measures the performance of the highest dividend-yielding S&P Composite 1500 Index constituents that have followed a managed-dividends policy of consistently increasing dividends every year for at least 20 consecutive years.
The fund has a basket of 123 securities with major allocations to industrials, consumer staples and utilities sector, having a share of 19.14%, 17.29% and 15.73%, respectively.
SPDR S&P Dividend ETF has a dividend yield of 2.67% and charges an annual fee of 0.35%. The fund commands an asset base of $21.50 billion and has a Zacks ETF Rank #2 with a Medium risk outlook. SDY has lost 5.10% year to date and lost 3.85% over the past year.
ProShares S&P 500 Dividend Aristocrats ETF (NOBL)
ProShares S&P 500 Dividend Aristocrats ETF seeks investment results that track the performance of the S&P 500 Dividend Aristocrats Index. The Index targets companies that are currently members of the S&P 500, have increased dividend payments each year for at least 25 years, and meet certain market capitalization & liquidity requirements.
The fund has 66 securities in its basket and has major allocations to the consumer staples, industrials and materials sectors, with each having a share of 24.74%, 23.13% and 11.92%, respectively.
ProShares S&P 500 Dividend Aristocrats ETF has a dividend yield of 1.97% and charges an annual fee of 0.35%. The fund commands an asset base of $10.87 billion and has a Zacks ETF Rank #2 with a Medium risk outlook. NOBL has lost 1.36% year to date and declined by 0.68% over the past year.
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SPDR S&P Dividend ETF (SDY): ETF Research Reports
Vanguard Dividend Appreciation ETF (VIG): ETF Research Reports
ProShares S&P 500 Dividend Aristocrats ETF (NOBL): ETF Research Reports
iShares Select Dividend ETF (DVY): ETF Research Reports
Schwab U.S. Dividend Equity ETF (SCHD): ETF Research Reports
