As rates decline, dividend-themed ETFs have begun to outperform, attracting income-minded investors with their relatively more attractive payouts.
Among the best performing dividend-related ETFs of this year, the First Trust Dorsey Wright Momentum & Dividend ETF (Nasdaq: DDIV) advanced 23.7%, Global X YieldCo Index ETF (NasdaqGM: YLCO) gained 23.1%, ClearBridge Dividend Strategy ESG ETF (NasdaqGM: YLDE) increased 22.3%, VictoryShares Dividend Accelerator ETF (NasdaqGM: VSDA) rose 22.0% and Vanguard Dividend Appreciation ETF (NYSEArca: VIG) added 20.5% year-to-date. In comparison, the S&P 500 Index was up 17.8% so far this year.
DDIV shows a 2.72% 12-month yield, YLCO has a 3.60% 12-month yield, YLDE has a 1.72% 12-month yield, VSDA shows a 1.37% 12-month yield and VIG has a 1.75% 12-month yield.
“Driven by declining yields, high dividend yielding stocks have outperformed low dividend payers since late July,” Dennis DeBusschere, senior managing director at Evercore ISI, said in a note, according to CNBC. “Even after the rebound, the relative performance of high vs. low dividend payers remains depressed, suggesting further upside for dividend payers as nominal bond yields remain extremely low yield.”
Safe-haven government bonds
Global uncertainty, mainly due to the ongoing U.S.-China trade war and its effects on the world economy, has pushed more investors into safe-haven government bonds and sent yields reeling. Yields on benchmark 10-year Treasury bonds were hovering around 1.639% on Monday, the lowest level since 2016.
Furthermore, we are likely in for a lower-for-longer rate outlook after the Federal Reserve recently cut interest rates for the first time in a decade, with many betting on further rate cuts ahead.
The depressed yields has set the stage for many income-minded investors to branch out in search of higher dividend-paying stocks. History has shown that attractive dividend stocks have been favored in low-rate environments as many turned to higher yields.
For more information on dividend stocks, visit our dividend ETFs category.