As U.S. stock markets stumble, investors could be turning to steady-paying, quality dividend exchange traded fund strategies.
Dividend-paying stocks have taken the lead as market volatility drags on major U.S. benchmarks, especially in the face of the sell-off in the growth style. Through February 4, the S&P 500 High Yield Dividend Index gained 2.1% including dividends, whereas the broader benchmark suffered a negative total return of 5.5% through Friday, the Wall Street Journal reports.
Additionally, the average dividend-paying stock in the S&P 500 was up by 6.6 percentage points more than non-paying S&P 500 company stocks in January, the widest disparity in favor of dividend-payers for 17 years, according to S&P Dow Jones Indices data.
“In this environment, a good place to hide would be some of these dividend-oriented companies that are going to grind through this market turbulence,” Sandy Villere, a portfolio manager at wealth management firm Villere & Co., told the WSJ.
Many see steady dividend-payers as a safer bet than more growth-oriented stocks that have helped power the stock markets to record highs, especially in the face of any pullbacks in a pricey market.
“Investors need to address the contingency of a market that could fall,” Phillip Toews, chief executive and co-portfolio manager at Toews Asset Management, told the WSJ. “One way to insulate yourself from losses is to have a dividend stock focus.”
Meanwhile, investors have dumped $7.5 billion into fund strategies that track dividend-paying stocks over January, the most on record, with over $2 billion of the inflows for the week that ended February 2, according to Refinitiv Lipper data.
Analysts argued that investors are turning to income-generating stocks as a relative safe haven from growing concerns, especially after the selling in once-highflying stocks, including some technology shares.
Investors can also target U.S. dividend-growers through a number of ETF options. For instance, the iShares Core Dividend Growth ETF (NYSEArca: DGRO) specifically targets companies that pay a qualified dividend. These firms must have at least five years of uninterrupted annual dividend growth and an earnings payout ratio of 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. Moreover, SDY follows a yield-weighting methodology that allocates a larger weight toward those with higher yields, so the portfolio leans toward 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 news, information, and strategy, visit the Dividend Channel.