Rising Rates Don't Keep Investors From This Dividend ETF

Higher interest rates are often viewed as problematic for dividend stocks and the related exchange traded funds, but even with two rate hikes this year and perhaps another coming, the Federal Reserve is not scaring investors from some dividend ETFs.

The Vanguard Dividend Appreciation ETF (NYSEArca: VIG) is the largest dividend exchange traded fund trading in the U.S. and is continuing to add assets even as interest rates tick higher.

VIG targets U.S. stocks that have increased dividends on a regular basis for at least 10 consecutive years. Company stocks that issue high dividend yields can be masking their distressed books or may not be sustainable and are heading for dividend cuts. Consequently, these quality dividend ETFs try to limit the impact of these value traps by requiring a history of sustainable dividend growth.

VIG tracks the NASDAQ US Dividend Achievers Select Index (formerly known as the Dividend Achievers Select Index).

“Even as the Federal Reserve increased interest rates last week for the fourth time since the financial crisis, assets in ETFs that hold high dividend stocks hardly budged. So far in June, investors have pulled $26 million from the funds, the first monthly outflows in more than a year, but a drop in the bucket for the second-largest smart beta category after value,” reports Carolina Wilson for Bloomberg.