The Federal Reserve boosted interest rates for the first time this year earlier in December. Given the strengthened growth outlook, some are anticipating the Federal Reserve to hike interest rates several times in 2017 to keep the economy from overheating.
However, a series of interest rate hikes should not be viewed as an indictment of dividend stocks and exchange traded funds. Some dividend ETFs can help investors endure those shocks, including new ETFs such as the Fidelity Core Dividend ETF (NYSEArca: FDVV), which debuted in September.
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, such as FDVV. 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.
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.