Global dividend growth slowed in the third quarter and with the Federal Reserve poised to raise interest rates as many as three times next year, some income investors are growing wary of the prospects for dividend stocks and exchange traded funds.
Those scenarios remind income investors that being selective is key when evaluating dividend ETFs. Stocks with steady yields reassure investors of a company’s strong financial health.
Additionally, dividend-paying stocks typically outperform those that do not pay over the long haul, with less volatility, due to the compounding effect of dividends on the investment’s overall return. Over the past 40 years, companies that boost payouts have proven to be less volatile than their counterparts that cut, suspended or did not initiate or raise dividends.
The Schwab US Dividend Equity ETF (NYSEArca: SCHD) remains a dependable, solid way for income investors to remain involved with dividend stocks even in the face of rising rates.
SCHD includes 100 stocks based on strong fundamentals, dividend yields and consistent dividend payouts for at least 10 consecutive years, and it has a 2.90% 12-month yield. SCHD charges just 0.07%, or $7 per $10,000 invested.
SCHD merits additional consideration at a time when many market observers are concerned U.S consumer prices, or inflation, are ticking higher.
Dividend growth as a means of trumping inflation could and arguably should serve to highlight the advantages of the ETFs that focus on dividend growth stocks. That group is comprised of well-established ETFs that emphasize dividend increase streaks as well as a new breed of funds that look for sectors chock full of stocks that have the potential to be future sources of dividend growth.
“While SCHD’s 24.4% weight to consumer staples, a sector that is pricey and rate-sensitive, is potentially concerning as the Fed turns hawkish, the ETF more than offsets its staple exposure with allocations to cyclical sectors that should perform well as rates climb higher. For example, SCHD allocates over 48% of its combined weight to cyclical technology, industrial and energy stocks,” according to InvestorPlace.
A dividend increase streak is useful for getting investors interested in a stock or ETF, but there has to be more meat on the bone to sustain that dividend growth. SCHD features that added meat by focusing on other quality factors such as return on equity, cash flow to debt ratios, dividend yield and five-year dividend growth.
For more information on dividend stocks, visit our dividend ETFs category.