Volatility and uncertainty have raised the appeal for dividend investing lately. Though the broad equity markets are showing up after two consecutive weeks of losses on steady economic fundamentals and renewed hopes of U.S. tax reform, geopolitical tensions and doubts over Trump’s administration continue to weigh on stocks.
In such a scenario, dividend-paying securities are the major sources of consistent income for investors when returns from the equity market are at risk. Meanwhile, bond yields have also declined sharply, boosting demand for dividend-paying stocks. Notably, 10-year Treasury yield dropped to the lowest level in eight weeks on Aug 21 following its longest streak of declines in more than 11 weeks. Additionally, weak inflation might put the third interest rate hike for this year off the table, putting further pressure on yields.
As such, investors are becoming defensive and shifting their focus to products that provide stability and safety in a rocky market. Dividend products offer both of these world’s — 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. This is especially true as companies that pay dividends generally act as a hedge against economic or political uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.
While there are plenty of options in the dividend ETF world, we have highlighted five funds from the category that have the lowest expense ratio and could be solid options for investors in uncertain markets.
Schwab U.S. Dividend Equity ETF (SCHD – Free Report)
With AUM of $5.7 billion, this product offers exposure to the 112 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 4.8% of assets. However, it is slightly tilted toward the consumer staples sector with 24.7% share while information technology, industrials, and consumer discretionary round off the top five. The fund charges 7 bps in annual fees and trades in solid volume of more than 506,000 shares a day. It has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
iShares Core High Dividend ETF (HDV – Free Report)
This ETF offers exposure to 73 high quality and high dividend stocks and tracks the Morningstar Dividend Yield Focus Index. It is moderately concentrated on the top firms as each holds not more than 7.9% of the assets. Consumer staples (21.6%), energy (15.7%) and healthcare (14.1%) are the top three sectors. HDV is among the largest and most popular funds in the space with an AUM of more than $6.3 billion and trades in a solid volume of around 380,000 shares a day. It charges 8 bps in fees per year and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
Vanguard Dividend Appreciation ETF (VIG – Free Report)
This is the largest and most popular ETF in the dividend space with AUM of $24.6 billion and average daily volume of about 634,000 shares. The fund follows the NASDAQ US Dividend Achievers Select Index, which is composed of high quality stocks that have a record of growing dividend year over year. It holds 185 securities in the basket with none accounting for more than 4.4% share. However, it has a definite tilt toward industrials at 31.8% while consumer services, consumer goods and healthcare round off the next three spots. The fund charges 8 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook.
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 404 securities, the product is pretty well spread out across components as each holds no more than 5.8% of assets. In terms of sector, the fund is also widely spread out with consumer goods, technology, financials, health care, and industrials taking double-digit exposure in the basket. It has amassed $18.5 billion in its asset base while trades in volume of 802,000 shares a day on average. Expense ratio comes in at 0.08%. VYM has 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 422 stocks in its basket with none accounting or more than 3.1% share. Information technology, healthcare, financials, consumer staples, industrials and consumer discretionary are the top sectors with a double-digit allocation each. The fund has accumulated $1.9 billion in its asset base and trades in good volumes of about 494,000 shares. It charges 8 bps in fess per year and has a Zacks ETF Rank #3 with a Medium risk outlook