Rising interest rates will change the way investors allocate an income oriented portfolio, but dividend exchange traded funds that emphasize dividend growth and quality stocks will likely weather the storm.
“Regardless of rates, we prefer dividend ETFs that emphasize dividend growth instead of maximizing yield,” according to Morningstar analyst Abby Woodham.
For instance, the SPDR S&P Dividend (NYSEArca: SDY), Vanguard Dividend Appreciation (NYSEArca: VIG) and Schwab U.S. Dividend Equity (NYSEArca: SCHD) track quality companies that pay sustainable dividends. Dividend growth typically reflects a positive management culture that emphasizes efficient capital allocation.
Moreover, the underlying holdings have consistently increased payouts over the years. Some even dividend increase streaks that span multiple decades. Companies that increases dividends year-over-year will help investors generate higher total returns.
SDY includes companies that have increased dividends every year for at least 20 consecutive years. VIG and SCHD track stocks that raised dividends dividends every year for the past 10 years. [Dividend ETFs Help Cushion Market Dips]
SDY has a 2.55% 12-month yield, VIG comes with a 2.14% yield and SCH shows a 2.71% yield.