The FOMC meeting concluded yesterday, with members predicting an annual inflation rate of 4.2% by the end of the year. 3.4% was the forecast in June, with 2% being the long-term target. During times of inflation, dividends can act as a hedge.
Though the Fed admits that inflation has come in hotter than anticipated, Fed Chairman Jerome Powell expressed confidence. “These bottleneck effects have been larger and longer-lasting than anticipated,” Powell said. “While these supply effects are prominent for now, they will abate. And as they do, inflation is expected to drop back toward our longer-run goal.”
Despite Assurances From Fed, Uncertainty Abounds
There are a number vexing signs that the market could be heading for trouble. An August 2021 job report showed only 235,000 jobs added — far behind the 750,000 anticipated. The US economy is expected to only grow 5.9% this year, a substantial downshift from the projection of 7% just three months ago. A debt-ceiling debate and the uncertain future of the infrastructure bill could also impact the markets. Though Evergrande didn’t upend markets as much as initially feared, the situation suggests that the global economy remains precarious.
The ongoing pandemic is also at play. “The path of the economy will depend significantly on the course of the virus,” the Fed said in a statement. “Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain.”
Dividend ETFs That Can Ride Out Market Uncertainty
When the economic waters are choppy, dividend growth companies can be a life vest. Here are three dividend growth ETFs that could help your portfolio float through troubled waters.
- The SmartETFs Dividend Builder ETF (DIVS) focuses on quality companies that generate moderate income and consistent dividend growth that — importantly — exceeds inflation. Only half of DIVS’s weight is allocated to U.S. companies, with the other half of their exposure lying in other markets. DIVS prioritizes companies that have cash flow and tidy balance sheets over flashy, high-yield numbers. Also, as an actively managed fund, it is well-suited to the moment.
- The Vanguard Dividend Appreciation ETF (VIG) has $65.99 billion AUM. It offers exposure to large-cap companies mostly tilted toward consumer staples, healthcare, and industrials. Only companies that have 10+ years of dividend growth are included in the fund. It charges six basis points.
- The iShares Core Dividend Growth ETF (DGRO) tracks the Morningstar Dividend Growth Index and offers low-cost exposure to U.S. stocks focused on dividend growth. This fund can be a core income generator, and its holdings include dividend growth staples such as Exxon Mobil (XOM), Johnson & Johnson (JNJ), and Microsoft (MSFT).
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