VSDA: Accelerant for Dividend Growth, Value | ETF Trends

With growth stocks wilting this year, plenty of value exchange traded funds are strutting their stuff. Same goes for dividend ETFs.

Those factors often intersect in the world of ETFs, and this year, that’s benefiting investors. Just look at the VictoryShares Dividend Accelerator ETF (VSDA). VSDA, which tracks the Nasdaq Dividend Accelerator Index, is outperforming the S&P 500 by 700 basis points year-to-date.

In a vacuum, that clearly proves that the combination of value and payout growth can be compelling for investors. To be sure, VSDA isn’t a dedicated value ETF, but many stocks with track records of consistent dividend growth also reside in the value category. But there are other reasons behind VSDA’s thumping of the broader market in 2022.

“In fact, expectations for higher interest rates have increased over the past several months, and now the market is pricing in several more aggressive rate hikes ahead, according to fed funds futures. In times when inflation rises, companies with pricing power may be better able to improve margins versus those companies with potential future earnings (i.e. more speculative growth stocks),” according to Victory Capital.

Regarding pricing power, VSDA allocates about 31% of its weight to the consumer staples and healthcare sectors. Not only do those groups possess pricing power, they are venerable sources of high-quality payout growth.

To the inflation point, VSDA focuses on companies with the best odds of boosting dividends in the future. While that’s a departure from the dividend increase streak methodology used by many competing strategies, VSDA is nonetheless a potent inflation-fighting idea owing to its dividend growth credentials.

Indeed, there’s a lot to like about dividend-oriented value strategies this year, but VSDA is a strong indication that investors should be selective when embracing this factor combination.

“All this makes a compelling argument for ‘value’ as an investment style. Thus, it should not be surprising to learn that over the past several quarters the small-cap value style box has been the best performing domestic equity category, according to the Russell family of indices,” concluded Victory Capital. “So if an investor (or advisor) agrees that value strategies may be well-positioned today and worthy of new capital allocations, it becomes a question of tactics and philosophy.”

VSDA yields 1.56%, confirming there’s ample room for dividend growth. Speaking of payout growth, more than half of VSDA’s components have dividend increase streaks of at least 25 years.

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