As bond yields pulled back, income-minded investors can look to dividend exchange traded funds to generate some extra cash.
For example, among the largest dividend-related ETFs on the market, the Vanguard Dividend Appreciation ETF (NYSEArca: VIG) has a 1.75% 12-month yield, Vanguard High Dividend Yield ETF (NYSEArca: VYM) has a 3.05% 12-month yield, SPDR S&P Dividend ETF (SDY) has a 2.48% 12-month yield, iShares Select Dividend ETF (NYSEArca: DVY) has a 3.36% 12-month yield and Schwab US Dividend Equity ETF (NYSEArca: SCHD) has a 2.86% 12-month yield.
Analysts argue that the pull back in yields and new phase of monetary loosening from central banks around the world could fuel renewed interest for dividend stocks over the second half of the year, the Wall Street Journal reports.
“This is a hard period for most investors to navigate through,” Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management, told the WSJ. “But stocks are supported by low bond yields as long as we don’t have a recession.”
Keith Lerner, chief market strategist at SunTrust Advisory Services, pointed out that dividend stocks account for a big percentage of outperformers in the S&P 500 and the number of outpeformers is among the highest of the more-than-a-decade-old bull market. On average, around 17% of S&P 500 company stocks generated dividend yields exceeding those of 10-year Treasuries since 1990.
Analysts at UBS Group AG and Wells Fargo Investment Institute, among others, have all urged investors to shift into dividend-generating stocks, particularly those less exposed to trade tensions.
Dividend-paying stocks can also help insulate investors from a broad market pullback. When the S&P 500 fell 6.6% in May in response to renewed trade concerns, a UBS portfolio that held components like Home Depot Inc., McDonald’s Corp., JPMorgan Chase & Co. and other dividend-paying stocks with below-average exposure to China only fell a modest 3.7%.
“Dividend yields are going to come into play for people looking to nibble at opportunities in the stock market,” Lerner told the WSJ. “Even if you’re more bearish, then equities that pay dividends are going to help buffer portfolios during periods of uncertainty.”
For more information on dividend stocks, visit our dividend ETFs category.