While there are many investment assets available on the market, investors should keep in mind that a core dividend growth exchange traded fund could help diversify a portfolio and potentially generate better risk-adjusted returns.
On the recent webcast, Re-Think Your Core: the Case for Dividend Growth, Dan Sanborn, senior U.S. market analyst for Ned Davis Research Group, points out that a dividend strategy has outperformed over time while diminishing potential downside risks.
“Over the long run, companies that have paid dividends have outperformed those that have not,” Sanborn said. “Moreover, companies that have grown their dividend have outperformed the broad group of dividend-paying stocks.”
Dividend stocks still rise and fall along with the broader equities space. However, dividend growers typically show less volatility, which is a major factor for many financial advisors, according to a recent ETF Trends survey.
Dividend growers’ ability to cushion the downside help them outperform the broader market over the long term.
“When compared to the S&P 500, growers tend to perform in-line and in some cases better during bull markets, and they don’t go down nearly as much during bear markets,” Sanborn added.
The trend is not limited to the U.S. markets. Simeon Hyman, head of investment strategy at ProShares, pointed out dividend-growing stocks have historically outperformed their respective broad equities markets both domestically and abroad, with lower volatility.