Yields remain low and spikes in volatility have caused some concern. Nevertheless, investors may consider a dividend ETF to generate stable returns.
Yields on benchmark 10-year Treasury notes have declined this year, even after the Fed announced its third rate hike in seven months. The yield on 10-year Treasuries have slipped to 2.202% from a high of 2.608% mid-March. The spread between benchmark Treasuries and high-divined payers are widening.
“If rates can stay down here you will see people begin to return to those days of owning high dividend stocks,” Rick Meckler, president of investment firm LibertyView Capital Management, told Reuters.
Investors may turn to dividend payers in a prolonged low rate, low growth environment as they search for yield. Dividend stocks may also be a safer play in a market that could be primed for a pullback, especially in the seasonally weak period of the year.
“September and October are historically trying months for equities and add on to that geopolitical risk, it is somewhat prudent to be taking a little bit off the table here,” Anthony Conroy, president at Abel Noser, told Reuters.
Nevertheless, yield-hungry investors can turn to alternative income-generating investments to make up the difference.
For example, ETF investors can consider dividend-focused options like the iShares Select Dividend ETF (NYSEArca: DVY), iShares Core High Dividend ETF (NYSEArca: HDV) and Oppenheimer Ultra Dividend Revenue ETF (NYSEArca: RDIV), among others.
The Select Dividend ETF tracks the Dow Jones Select Dividend Index, which includes the highest-yielding 100 stocks from the Dow Jones that have paid annual dividends and showed dividend-per-share growth over the past five years.
The Core High Dividend ETF tracks the Morningstar Dividend Yield Focus Index, which follows 75 dividend payers screened for qualified dividend income, excluding real estate investment trusts and master limited partnerships. Additionally, the underlying index screens for companies with wide economic moats, or competitive advantages, low default rating and high-yields.
Lastly, the Ultra Dividend Revenue ETF follows the OFI Revenue Weighted Ultra Dividend Index, which includes the top 60 securities from the S&P 900 ranked by the average 12 month trailing dividend yield in each of the previous four trailing quarters, and each component is then ranked by top line revenue instead of market-capitalization.
For more information on dividend paying stocks, visit our dividend ETFs category.