Although interest rates are poised to rise, income investors should still consider select dividend stocks and exchange traded funds.
Dividend growers provide an aspect of quality and growth since these firms have a long track record of raising dividends. Companies that have consistently raised dividends also exhibit stable balance sheets and consistent earnings growth.
Over the long-term, high-quality dividend-paying stock exchange traded funds could produce outperforming results. The iShares Core High Dividend ETF (NYSEArca: HDV) is one ETF that can position investors for years of consistent, dependable dividends.
The $6.6 billion, which turns six years old later this month, holds 74 dividend stocks. HDV follows the Morningstar Dividend Yield Focus Index and the ETF’s other double-digit sector allocations are healthcare and utilities. In 2014, HDV became a member of the iShares core suite of ETFs.
HDV “seeks to track the investment results of the Morningstar Dividend Yield Focus Index composed of relatively high-dividend-paying U.S. equities,” according to Seeking Alpha. “The selected stocks, in Morningstar’s opinion, must have an economic ‘moat’; business advantages that should allow the company to hold up well even in an economic downturn.”
In October, BlackRock, the parent company of iShares, lowered HDV’s annual fee to 0.08% from 0.12%. That means HDV charges just $8 per year on a $10,000 investment and that also means it is one of the least expensive dividend ETFs trading in the U.S.
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.
High-yield dividend exchange traded funds offer attractive yields for the income-strapped investor, but the higher payouts come with risks, such as potentially unsustainable dividends.
In terms of higher yielding sectors, HDV allocates 26% of its weight to consumer staples stocks and another 19.3% combined to telecom and utilities names. HDV has a trailing 12-month dividend yield of 3.2%, which is a fair bit above the yield on 10-year Treasuries.
“A forward-looking evaluation of the strength of each company’s balance sheet, ranking companies on their likelihood of financial distress and only selecting those at the least risk of default,” according to the Seeking Alpha analysis on HDV.
For more news and strategy on the Dividend ETF market, visit our Dividends category.