Dividend investing is a sensation in terms of increasing inflows and price appreciation, but managing a diverse portfolio of dividend stocks isn’t the easiest task. In this instance, dividend ETFs are a great way to generate income without the added stress.
- What are dividend aristocrat ETFs?
- Why Should You Invest in Dividend Aristocrat ETFs?
- JPMorgan Diversified Return International Equity ETF (JPIN)
- SPDR S&P Dividend ETF (SDY)
- Vanguard Short-Term Inflation-Protected Securities Index Fund ETF (VTIP)
- iShares Select Dividend ETF (DVY)
- Vanguard Dividend Appreciation ETF (VIG)
- iShares Core Dividend Growth ETF (DGRO)
- ProShares S&P 500 Dividend Aristocrats ETF (NOBL)
- In summary
While price appreciation is not always huge, this method of investment provides a reliable source of income for investors in any market, especially in a year like 2022 that has been distinguished by extreme volatility, uncertainty, and ongoing geopolitical tensions between Ukraine and Russia impacting global economies.
This is particularly true since dividend-producing ETFs provide security through payment distributions, as well as durability through established firms that are less susceptible to significant market movements. When equity market returns are under threat, dividend-producing assets are important sources of reliable income for investors. Furthermore, these goods have been shown to outperform over time.
The most successful dividend ETFs are those that come from respectable fund families and provide consistent cash flow from a well-diversified portfolio of large- and mid-cap equities. These gold-standard dividend ETFs are called dividend aristocrats.
Although there are many dividend ETFs to choose from, focusing on dividend aristocrats could be a smart choice in today’s market climate, which has been unsettled by rising inflation and geopolitical concerns.
What are dividend aristocrat ETFs?
Dividend aristocrats are blue-chip dividend-distributing firms with a track record of raising dividend payments year after year for 25+ years. A firm like this shows, among other attributes, a commitment to good governance.
Furthermore, compared to other products in the industry, dividend aristocrat funds provide investors with dividend growth potential, though they may not always offer the best yields.
They are often thought to be one of the best strategies to deal with market volatility. Because of the global relaxing of monetary policy, market volatility generated by the pandemic, geopolitical tensions, and a slowing of the global economy, people are becoming more interested in dividend investing.
Why Should You Invest in Dividend Aristocrat ETFs?
The fact that these funds provide a major source of predictable income for investors when equities market returns are uncertain is why there is so much demand for them.
According to S&P Down Jones Indices (looking at data from January 1990 to June 2021), the S&P 500 Dividend Aristocrats has actually outperformed the S&P 500 benchmark 69.29% of the time in down months and 43.43% of the time in up months.
Compared to simple dividend-paying equities or those with high yields, they constitute a robust portfolio with a larger potential for capital appreciation. They offer a sweet mix of both yearly dividend growth and capital appreciation potential, making them particularly appealing to risk-averse, long-term investors.
In light of this, let’s take a look at some ETFs that investors might want to consider investing in right now:
JPMorgan Diversified Return International Equity ETF (JPIN)
Although JPIN isn’t technically marketed as a dividend ETF, it makes the list due to its high yield and low expense ratio. The ETF follows The JP Morgan Diversified Factor International Equity Index, and screens for value, quality, and momentum indicators using a factor method, which could lead to better returns.
SPDR S&P Dividend ETF (SDY)
The SPDR S&P Dividend ETF, which has a market capitalization of $20.38 billion, aspires to match the total return performance of the S&P High Yield Dividend Aristocrats Index before fees and costs. The index looks for companies that have increased their dividend for at least 20 years in a row.
Vanguard Short-Term Inflation-Protected Securities Index Fund ETF (VTIP)
VTIP follows The Bloomberg U.S. Treasury TIPS 0-5 year index, which measures Treasury Inflation-Protected Securities (TIPS) having a maturity of fewer than five years.
VTIP is a small-fee U.S. inflation bond fund that aims to provide investors with cash flow, capital appreciation, and capital preservation while limiting inflation’s impact.
The interest rate on the fund’s individual TIPS is established when the bonds are issued. Quarterly dividends are paid on the bonds’ inflation-adjusted value.
iShares Select Dividend ETF (DVY)
The iShares Select Dividend ETF, with a market capitalization of $20.59 billion, tracks the Dow Jones U.S. Select Dividend Index and provides exposure to broad-cap U.S. firms with a continuous history of pay-outs.
Vanguard Dividend Appreciation ETF (VIG)
With a market capitalization of $64.50 billion, Vanguard Dividend Appreciation ETF is the largest and most popular dividend ETF. It follows the S&P U.S. Dividend Growers Index.
The index measures large-cap stocks with a history of increasing dividends. Many blue-chip companies are represented in the portfolio, including Microsoft, UnitedHealth Group, Johnson & Johnson, and Procter & Gamble.
Around 65% of VIG’s holdings are in information technology, industrial equities, financials, and health care. Investors can count on significant price appreciation with this fund, which might compensate for its more modest income potential.
iShares Core Dividend Growth ETF (DGRO)
By tracking the Morningstar US Dividend Growth Index, this portfolio gives exposure to firms with a history of consistent dividend growth. DGRO has a market capitalization of $22.84 billion.
ProShares S&P 500 Dividend Aristocrats ETF (NOBL)
With $9.76 billion in assets, the ProShares S&P 500 Dividend Aristocrats ETF (NOBL) is the only ETF dedicated solely to the S&P 500 Dividend Aristocrats, which are high-quality businesses that have paid and raised dividends for at least 25 or more years. It follows the performance of the S&P 500 Dividend Aristocrats Index before fees and expenses.
When selecting a dividend ETF, keep the following in mind:
Quality. This refers to the stock quality and creditworthiness of the ETF’s holdings. If the fund invests in riskier firms with weaker credit ratings, the fund’s value is more likely to fall, lowering your total return. As a basic guideline, avoid funds that invest in risky companies.
Yield. This is the proportion of the purchase price that was paid out in dividends over the previous year. A dividend yield of 10% means that a $200 ETF pays out $20 in dividends.
Growth. A firm’s current dividend payment does not guarantee that it will continue in the future. Even if the dividend is maintained, there is no certainty that pay-outs will increase over time. That is why many investors choose to invest in dividend aristocrats. S&P 500 companies have a lengthy history of increasing their dividends over time.
Dividend aristocrats are the gold standard of dividend-producing ETFs, so they’re a good choice for investors looking for a stable stream of dividend income.
All investors, at all stages of their investing careers, can benefit from a dividend-focused investment strategy. Remember to always evaluate your financial objectives and whether dividend ETFs can assist you in achieving them. If they can, then dividend aristocrats could be the best option for you.
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