Demand for dividend stocks and exchange traded funds remains robust as investors continue looking for ways to generate income in a low interest rate environment.
A number of factors contribute to the ongoing appeal of investing in dividend ETFs. For instance, dividend payouts provide downside protection or help cushion short-term dips, writes John Prestbo for MarketWatch.
Additionally, investors will find that steady dividend stocks reflect more mature or established companies that are steadfast against temporary swings in the equities market. [A Low-Cost Dividend ETF That Focuses on Quality Names]
“Research has shown that the market does not fully incorporate these beneficial attributes into the prices of quality firms, so high-quality stocks have better risk-adjusted returns over time than lower-quality stocks,” according to Morningstar analyst Abby Woodham.
Dividend plays strengthened in the the recent sell-off in small-caps and growth stocks.
For instance, year-to-date, the iShares Select Dividend ETF (NYSEArca: DVY) is up 4.8%, iShares High Dividend ETF (NYSEArca: HDV) is up 5.2%, Vanguard High Dividend Yield ETF (NYSEArca: VYM) is up 4.5%, Vanguard Dividend Appreciation ETF (NYSEArca: VIG) is up 2.0% and SPDR S&P Dividend ETF (NYSEArca: SDY) is up 3.5%. [This Dividend ETF Keeps Grinding Higher]
Dividend investments also provide a measure of diversification, compared to the broader market. Specifically, DVY shows a beta of 0.98 relative to the Dow Jones U.S. Total stock Market index, HDV is 0.58, SDY is 0.82, VIG is 0.85 and VYM is 0.85 – a beta less than 1 indicates that the security is less volatile or will be less likely to match the broader market’s movements.
DVY tracks the Dow Jones Select Dividend Index, which includes the highest-yielding 100 stocks from the Dow Jones that have paid annual dividends and showed dividend-per-share growth over the past five years. The ETF has a heavy tilt toward defensive sectors like utilities 34.4% and consumer goods 15.7%. DVY has a 0.4% expense ratio and a 2.98% 12-month yield.
HDV tracks the Morningstar Dividend Yield Focus Index, which follows 75 dividend payers screened for qualified dividend income, excluding real estate investment trusts and master limited partnerships. Additionally, the underlying index screens for companies with wide economic moats, or competitive advantages, low default rating and high-yields. Top sectors include consumer goods 24.8%, health care 19.8% and utilities 13.3%. The ETF has a 0.40% expense ratio and a 3.06% 12-month yield.