Inflation fears and rate hikes aren’t stopping companies from offering dividends. In fact, according to a recent Barron’s article, companies that do offer a dividend are upping the ante despite fears of an economic recession.
“Even as worries about a recession grow louder, several companies have been putting through large dividend increases, signaling confidence in their businesses,” the article noted.
However, it’s not an easy matter of simply buying companies that offer the highest dividends. Investors need to be more discerning given the recession fears percolating in the capital markets. The U.S. Federal Reserve is inclined to do whatever takes in order to keep inflation under control, and they did just that by hiking the federal funds rate by 75 basis points, making it the largest rate hike since 1994.
However, that’s not to say that the volatility will simply disappear. In fact, when markets do see drawdowns, it represents an opportune time to buy.
“When the market comes down so far, so fast, you can find genuinely good buying opportunities,” said “Mad Money” host Jim Cramer.
“You’ve got to be selective because the market remains horrific. That means picking at the kind of defensive stocks that can hold up just fine even with inflation and the very real possibility of a Fed-mandated recession,” Cramer said.
While investors can pore over various stocks that offer the best dividends, there is an easier way. Exchange traded funds (ETFs) that focus solely on dividends can offer a one-stop-shop solution.
High Dividends in 1 ETF
One fund to look at is the Vanguard High Dividend Yield Index Fund ETF Shares (VYM). VYM employs an indexing investment approach designed to track the performance of the FTSE High Dividend Yield Index, which consists of common stocks of companies that pay dividends that generally are higher than average.
The advisor attempts to replicate the target index by investing all, or substantially all, of their assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.
In summary, VYM:
- Seeks to track the performance of the FTSE® High Dividend Yield Index, which measures the investment return of common stocks of companies characterized by high dividend yields.
- Provides a convenient way to track the performance of stocks that are forecasted to have above-average dividend yields.
- Follows a passively managed, full-replication approach.
For more news, information, and strategy, visit the Fixed Income Channel.