7 Dividend Stock ETFs for a Prolonged Low-Rate Environment

Dividend yields recently surpassed those of benchmark Treasury notes for the first time since 2016, potentially providing further support for equity markets and dividend-paying stock exchange traded funds in this prolonged low-rate environment.

According to Bank of America data, dividend yields for the S&P 500 index at 1.89% surpassed the yield of 10-year Treasuries at 1.5% for the first time in three years, CNBC reports. Looking at every period this has occurred, stocks have historically outperformed bonds 94% of the time 12 months out after this has happened, and they have outperformed by 23 percentage points over that time period.

“Stocks are a ‘no brainer’ vs. bonds,” Bank of America analyst Savita Subramanian said in a note.

The dividend yield disparity still lingered on through Monday with the S&P 500 yielding 1.8%, compared to the 1.73% yield on the 10-year notes.

Investors receive higher returns on stocks than bonds from dividends alone, even without the potential for further upside in price gains. Historically, Bank of America argued that this has been a great time to own stocks.

“Stocks still look cheap on growth and cash flow” as well, Subramanian added.

Investors, though, may be wary of stocks with ongoing uncertainties such as trade war headlines weighing on riskier assets. Alternatively, one may look to quality dividend-paying stocks that provide steady income in volatile conditions.

ETF investors can also target U.S. dividend growers through a number of options. For instance, the iShares Core Dividend Growth ETF (NYSEArca: DGRO) specifically targets companies that pay a qualified dividend, must have at least five years of uninterrupted annual dividend growth and their earnings payout ratio must be less than 75%.

The ProShares S&P 500 Aristocrats ETF (NYSEArca: NOBL) only targets S&P 500 companies that have increased their dividends for at least 25 consecutive years.

The Vanguard Dividend Appreciation ETF (NYSEArca: VIG), the largest dividend-related ETF on the market, tracks U.S. stocks that have increased dividends on a regular basis for at least 10 consecutive years.

The Schwab US Dividend Equity ETF (NYSEArca: SCHD) includes 100 stocks based on strong fundamentals, such as cash flow to debt, return on equity, dividend yield and consistent dividend payouts for at least 10 consecutive years.

The Invesco Dividend Achievers ETF (NYSEArca: PFM) also selects companies that have increased annual dividends for 10 or more consecutive fiscal years.

The SPDR S&P Dividend ETF (NYSEArca: SDY) holds firms that have a minimum dividend increase streak of 20 years for inclusion. Moreover, SDY follows a yield-weighting methodology that allocates a larger weight toward those with higher yields, so the portfolio leans toward more mid-sized companies.

The WisdomTree U.S. Quality Dividend Growth Fund (NasdaqGM: DGRW) includes companies with high long-term earnings-growth forecasts for the next three to five years and weights components based on the value of dividends they are expected to pay over the next year.

For more information on dividend stocks, visit our dividend ETFs category.