With the market entering bear territory and central banks engaging in quantitative tightening to battle record-high inflation, many analysts are forecasting a recession. So, many investors are turning to dividend stocks and their related exchange traded funds.
Equity income stocks and ETFs are outperforming the broader market this year, and many are doing so with less volatility. In addition, the data show that payouts are growing in the U.S. and around the world, emphasizing the idea that equity income ETFs can be used as tools for fighting inflation.
With markets continuing to be volatile, here are some of the most popular equity income ETFs in terms of bringing in investor capital:
1. The Schwab US Dividend ETF (SCHD)
(Year-to-date inflows as of Oct. 3: $11 billion)
- Includes 100 stocks based on strong fundamentals, such as cash flow to debt, return on equity, dividend yield, and consistent dividend payouts for at least 10 consecutive years.
- Its underlying index methodology requires a long track record of distributions. The methodology also considers multiple metrics, including dividend growth and dividend yield, resulting in a portfolio that should offer a substantial upgrade in payout compared to the broader market.
- Carries an expense ratio of 06%.
2. The JPMorgan Equity Premium Income ETF (JEPI)
(YTD inflows: $9 billion)
- The actively managed JEPI generates income by selling options on U.S. large-cap stocks.
- The hedge-fund-like strategy invests in S&P 500 stocks that exhibit low-volatility and value characteristics and sells options on those stocks to generate additional income.
- Carries an expense ratio of 0.35%.
3. The Vanguard High Dividend Yield ETF (VYM)
(YTD inflows: $7.6 billion)
- This ETF is linked to the FTSE High Dividend Yield Index, which offers exposure to dividend-paying large-cap companies that exhibit value characteristics within the U.S. equity market.
- VYM is linked to an index consisting of roughly 440 holdings and exposure is tilted most heavily towards consumers, energy, and industrials. Only the highest-yielding companies are chosen.
- The fund offers investors broad exposure to dividend-paying companies, giving investors a much wider net than the other dividend-focused firms in the space.
- Carries an expense ratio of 06%.
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