The markets have plunged to August lows, and some market observers believe the selling is overdone. For those who believe in a market rebound but are still wary of potential turns, look to steady dividend-paying stock exchange traded funds.
PIMCO global economic advisor Joachim Fels said that while recent data shows the economy slowed in the fourth quarter, the news should not have been a shocker or dragged the market down to this extent, reports Tom DiChristopher for CNBC.
Fels argues that the economy can still reaccelerate on eh back of decent job growth, low energy prices and strong residential construction sector.
“What we see is actually a small weakening … but we don’t see the type of fundamental changes that would indicate that we have the level of concern that the market seems to think that we do,” David Bailin, global head of managed investments at Citi Private Bank, told CNBC.
Consequently, Bailin believes investors should buy stocks that are cheaper, have strong dividends and have good earnings prospects.
Investors can also look to diversify with stable, dividend-paying stock ETFs in uncertain times. There are a number of broad ETFs that target stocks with a history of consistently raising dividends as a way to generate more attractive returns and to gain exposure to more quality names.
For instance, the Vanguard Dividend Appreciation ETF (NYSEArca: VIG) tracks U.S. stocks that have increased dividends on a regular basis for at least 10 consecutive years and has a 2.34% 12-month yield. The Schwab US Dividend Equity ETF (NYSEArca: SCHD) includes 100 stocks based on strong fundamentals, dividend yields and consistent dividend payouts for at least 10 consecutive years, and it has a 2.97% 12-month yield. The SPDR S&P Dividend ETF (NYSEArca: SDY) holds firms that have a minimum dividend increase streak of 20 years for inclusion and shows a 2.57% 12-month yield. The ProShares S&P 500 Aristocrats ETF (NYSEArca: NOBL) only includes companies that have increased their dividends for at least 25 consecutive years and offers a 2.02% 12-month yield.
The recent selling pressure in the equities market has also made dividend stock plays more attractive, compared to fixed-income assets. As the S&P 500 index experiences its worst start to a new year since 2009, dividend yields in the benchmark climbed 30 basis points above the yield offered by 10-year Treasuries, the largest spread in a year, reports Joseph Ciolli for Bloomberg.
The difference between U.S. equity dividend yields and government bonds can be used as a proxy for valuation comparison between the two assets. On average over the past year, the yield on 10-year Treasuries exceeded that of the S&P 500 dividends by 7.7 basis points.
Max Chen contributed to this article.