Amid heightened uncertainty about the global economy and rising interest rates, investors have become defensive and are seeking safe and stable investments.
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. The dividend-paying securities are the major sources of consistent income for investors when returns from equity markets are at risk. Further, these products have proven outperformers over the long term (read: Dividend ETFs Explained: What Investors Need to Know).
While there are plenty of options in the dividend ETF world, honing in on the ‘dividend aristocrats’ could be the most beneficial way to ride out the current market volatility resulting from geopolitical concerns. Further, the yields on government bonds have fallen to lower levels despite the Fed scaling back its stimulus. The lower yields have compelled investors to look for other cash generating streams.
Why Dividend Aristocrats?
Dividend aristocrats are the blue-chip dividend-paying companies, which have 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 (see: all Large Cap ETFs here).
Investors should note that the dividend aristocrat funds offer more dividend growth opportunities when compared to 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. For them, we have highlighted some ETFs that could be excellent choices regardless of stock market directions.
SPDR S&P Dividend ETF (SDY – Free Report)
SDY is one of the most popular and liquid ETFs in the dividend space with AUM of $14.07 billion and average daily volume of more than 900,312 shares. This fund provides exposure to U.S. stocks that have been consistently increasing their dividends every year for at least 25 consecutive years. This can be done by tracking the S&P High Yield Dividend Aristocrats Index (read: Safe Haven ETFs to Evade Geopolitical Tensions).
The product is widely spread out across a number of securities, as none hold more than 2.70% of total assets. Though the fund is slightly skewed toward the industrials sector with 16.76%, financials, consumer staples, materials, and utilities make up for a nice mix in the portfolio with double-digit allocations. The fund charges 35 bps in fees per year and yields 2.44% in 30-day SEC. It has added 11.57% in value so far this year, and has a #2 (Buy) on the Zacks ETF Rank with a Medium risk outlook.
