Whether the Fed acknowledges inflation is a problem or not, investors can counter the threat of rising rates with dividend ETFs such as the SmartETFs Dividend Builder ETF (DIVS).
Inflation has been an easy target to blame for stock market volatility over the past few months. Investors have become increasingly worried that rising consumer prices could stifle the economic recovery following the pandemic.
Those fears have been substantiated by recent market data.
“Earlier this month, the Bureau of Labor Statistics reported that 12-month inflation, as measured by the Consumer Price Index for All Urban Consumers (CPI-U) was 5.4% in June 2021,” a Motley Fool article noted. “When taken as a whole, it’s the largest one-year jump since August 2008. Even scarier is that the core Consumer Price Index (the CPI-U minus food and energy) rose 4.5%, representing the highest 12-month increase since November 1991.”
Of course, this is a concern to fixed income investors. Inflation can erode the income derived from assets like bonds where investors could be locked in on yields lower than rates (assuming they rise0 offered by other investment vehicles.
“Inflation can destroy the purchasing power of cash sitting on the sidelines,” the article added. “That’s why an environment of rising inflation is the perfect time to consider buying high-yield dividend stocks. The following five high-yielding stocks can practically offset inflation with their generous payouts, as well as provide the potential for steady share price appreciation.”
DIVS to The Rescue
This is where an ETF like DIVS can be of benefit to the fixed income investor worried about rising rates. DIVS is an actively managed dividend growth strategy that seeks discerning, dividend-paying companies that have provided an inflation-adjusted cash flow return on investment of at least 10% in each of the last 10 years.
Furthermore, investors also get income diversification to locate opportunities around the globe. The ETF invests in approximately 35 dividend-paying companies globally.
The SmartETFs Dividend Builder ETF seeks a moderate level of current income and consistent dividend growth at a rate that exceeds inflation by targeting quality companies at attractive valuations. And, of course, capture exposure to the aforementioned ANTA Sports Products, which analysts are liking at present.
“Many dividend growth ETFs focus on the dividend history,” the fund website said. “We prefer to look at the economic fundamentals of each company.”
For more news, information, and strategy, visit the Dividend Channel.