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Amid the growing anxiety about a slowing U.S. economy, geopolitical tensions and the looming November elections, the appeal for dividend investing has returned. This is especially true as this concern has led to a massive sell-off in the U.S. stock market, wiping out most of the gains made this year.
Traders are betting that the U.S. economy has lost steam and is on the verge of sliding toward a recession, given rising unemployment, high interest rates and fading confidence in the tech sector. The labor market cooled in July as the economy added 114,000 jobs, 35% fewer than expected. Unemployment rose to 4.3% — the highest since October 2021 — and represented the fourth consecutive monthly increase. U.S. manufacturing activity dropped to an eight-month low in July amid a slump in new orders.
Additionally, concerns that big technology companies’ shares, particularly those investing heavily in artificial intelligence (AI), have been overvalued led to massive sell-offs in early August. Further, soft earnings of some of the “Mag 7” as well as other big corporate giants dampened investors' mood (read: Should You Buy the Dip in Tech ETFs?).
Per the latest CME FedWatch tool, traders are pricing in a 100% chance of a 50-bps cut in September. Lower interest rates generally lead to reduced borrowing costs, which help businesses expand their operations more easily, resulting in increased profitability. This, in turn, stimulates economic growth and provides a boost to the stock market.
Given this, investors have become defensive and shifted their focus to products that provide stability and safety in a rocky market. We have highlighted several reasons why dividend investing seems to be a viable strategy amid the market turmoil.
Income Generation: One of the primary benefits of dividend investing is the steady stream of income generated through dividend payouts.
Potential for Dividend Growth: Companies with a strong history of dividend growth may continue to increase the same over time. These are typically established, profitable companies that have the financial flexibility to increase dividends even during economic downturns. Their ability to grow dividends can be a sign of financial health, which might provide some level of protection in an uncertain market.
Defensive Nature: Dividend-paying stocks are often found in sectors considered "defensive," such as utilities, consumer staples and healthcare. These sectors can hold up better during economic downturns as they produce essential goods and services that are in demand regardless of economic conditions. Therefore, they may provide some level of stability in a portfolio when concerns start to build up (read: 5 ETF Strategies to Follow Amid the Current Market Turmoil).
Compounding Returns: Reinvesting dividends can significantly enhance the power of compounding and can lead to exponential growth over the long term.
Hedge Against Inflation: Dividend-paying stocks can also serve as a hedge against inflation. Companies that can pass on increased costs to customers can maintain or even increase their profitability during inflationary periods, which can support their ability to pay dividends.
ETFs to Bet On
We have highlighted five dividend ETFs that are clearly outpacing the broad market indices by wide margins over the past month and are considered solid options for investors searching for some returns in uncertain markets.
Russell 2000 Dividend Growers ETF is the only ETF focusing exclusively on the best dividend growers in the Russell 2000. This includes quality companies that have not just paid dividends but grown them for at least 10 consecutive years. SMDV holds 101 stocks in its basket, with the highest allocation of 30% in the financial sector, followed by 22.3% in industrials and 18.2% in utilities. Russell 2000 Dividend Growers ETF has AUM of $685.4 million and charges 40 bps in annual fees. It has a Zacks ETF Rank #3 (Hold).
Invesco S&P 500 High Dividend Low Volatility ETF offers exposure to 51 stocks trading on the S&P 500 Index that historically have provided high dividend yields and low volatility. It follows the S&P 500 Low Volatility High Dividend Index. Invesco S&P 500 High Dividend Low Volatility ETF is widely spread across sectors, with utilities, consumer staples, real estate and healthcare receiving double-digit exposure each. Invesco S&P 500 High Dividend Low Volatility ETF has amassed $3.3 billion and charges 30 bps in annual fees. It has a Zacks ETF Rank #3.
Invesco High Yield Equity Dividend Achievers ETF offers exposure to well-diversified 51 stocks selected principally based on dividend yield and consistent growth in dividends. It tracks the NASDAQ US Dividend Achievers 50 Index, charging 51 bps in fees from investors. Financials, utilities, and consumer staples are the top three sectors accounting for double-digit exposure each. Invesco High Yield Equity Dividend Achievers ETF has amassed $1.2 billion in AUM and has a Zacks ETF Rank #3.
SPDR Portfolio S&P 500 High Dividend ETF provides exposure to stocks with a high level of dividend income and the opportunity for capital appreciation by tracking the S&P 500 High Dividend Index. Holding 80 stocks in its basket, the fund has key holdings in real estate, utilities, financials, and consumer staples. SPDR Portfolio S&P 500 High Dividend ETF has AUM of $6.2 billion. It charges 7 bps in annual fees and has a Zacks ETF Rank of #2 (Buy) (read: Time to Buy High-Dividend ETFs?).
WisdomTree U.S. High Dividend Fund offers exposure to U.S. high dividend-yielding companies by tracking the WisdomTree U.S. High Dividend Index. It holds 376 stocks in its basket, with key holdings in financials, energy, utilities, consumer staples and healthcare. WisdomTree U.S. High Dividend Fund has amassed $1.1 billion in its asset base. It charges 38 bps in fees per year and has a Zacks ETF Rank #3.
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5 Dividend ETFs Crushing the Market
Amid the growing anxiety about a slowing U.S. economy, geopolitical tensions and the looming November elections, the appeal for dividend investing has returned. This is especially true as this concern has led to a massive sell-off in the U.S. stock market, wiping out most of the gains made this year.
Traders are betting that the U.S. economy has lost steam and is on the verge of sliding toward a recession, given rising unemployment, high interest rates and fading confidence in the tech sector. The labor market cooled in July as the economy added 114,000 jobs, 35% fewer than expected. Unemployment rose to 4.3% — the highest since October 2021 — and represented the fourth consecutive monthly increase. U.S. manufacturing activity dropped to an eight-month low in July amid a slump in new orders.
Additionally, concerns that big technology companies’ shares, particularly those investing heavily in artificial intelligence (AI), have been overvalued led to massive sell-offs in early August. Further, soft earnings of some of the “Mag 7” as well as other big corporate giants dampened investors' mood (read: Should You Buy the Dip in Tech ETFs?).
Per the latest CME FedWatch tool, traders are pricing in a 100% chance of a 50-bps cut in September. Lower interest rates generally lead to reduced borrowing costs, which help businesses expand their operations more easily, resulting in increased profitability. This, in turn, stimulates economic growth and provides a boost to the stock market.
Given this, investors have become defensive and shifted their focus to products that provide stability and safety in a rocky market. We have highlighted several reasons why dividend investing seems to be a viable strategy amid the market turmoil.
Income Generation: One of the primary benefits of dividend investing is the steady stream of income generated through dividend payouts.
Potential for Dividend Growth: Companies with a strong history of dividend growth may continue to increase the same over time. These are typically established, profitable companies that have the financial flexibility to increase dividends even during economic downturns. Their ability to grow dividends can be a sign of financial health, which might provide some level of protection in an uncertain market.
Defensive Nature: Dividend-paying stocks are often found in sectors considered "defensive," such as utilities, consumer staples and healthcare. These sectors can hold up better during economic downturns as they produce essential goods and services that are in demand regardless of economic conditions. Therefore, they may provide some level of stability in a portfolio when concerns start to build up (read: 5 ETF Strategies to Follow Amid the Current Market Turmoil).
Compounding Returns: Reinvesting dividends can significantly enhance the power of compounding and can lead to exponential growth over the long term.
Hedge Against Inflation: Dividend-paying stocks can also serve as a hedge against inflation. Companies that can pass on increased costs to customers can maintain or even increase their profitability during inflationary periods, which can support their ability to pay dividends.
ETFs to Bet On
We have highlighted five dividend ETFs that are clearly outpacing the broad market indices by wide margins over the past month and are considered solid options for investors searching for some returns in uncertain markets.
Russell 2000 Dividend Growers ETF (SMDV - Free Report)
Russell 2000 Dividend Growers ETF is the only ETF focusing exclusively on the best dividend growers in the Russell 2000. This includes quality companies that have not just paid dividends but grown them for at least 10 consecutive years. SMDV holds 101 stocks in its basket, with the highest allocation of 30% in the financial sector, followed by 22.3% in industrials and 18.2% in utilities. Russell 2000 Dividend Growers ETF has AUM of $685.4 million and charges 40 bps in annual fees. It has a Zacks ETF Rank #3 (Hold).
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD - Free Report)
Invesco S&P 500 High Dividend Low Volatility ETF offers exposure to 51 stocks trading on the S&P 500 Index that historically have provided high dividend yields and low volatility. It follows the S&P 500 Low Volatility High Dividend Index. Invesco S&P 500 High Dividend Low Volatility ETF is widely spread across sectors, with utilities, consumer staples, real estate and healthcare receiving double-digit exposure each. Invesco S&P 500 High Dividend Low Volatility ETF has amassed $3.3 billion and charges 30 bps in annual fees. It has a Zacks ETF Rank #3.
Invesco High Yield Equity Dividend Achievers ETF (PEY - Free Report)
Invesco High Yield Equity Dividend Achievers ETF offers exposure to well-diversified 51 stocks selected principally based on dividend yield and consistent growth in dividends. It tracks the NASDAQ US Dividend Achievers 50 Index, charging 51 bps in fees from investors. Financials, utilities, and consumer staples are the top three sectors accounting for double-digit exposure each. Invesco High Yield Equity Dividend Achievers ETF has amassed $1.2 billion in AUM and has a Zacks ETF Rank #3.
SPDR Portfolio S&P 500 High Dividend ETF (SPYD - Free Report)
SPDR Portfolio S&P 500 High Dividend ETF provides exposure to stocks with a high level of dividend income and the opportunity for capital appreciation by tracking the S&P 500 High Dividend Index. Holding 80 stocks in its basket, the fund has key holdings in real estate, utilities, financials, and consumer staples. SPDR Portfolio S&P 500 High Dividend ETF has AUM of $6.2 billion. It charges 7 bps in annual fees and has a Zacks ETF Rank of #2 (Buy) (read: Time to Buy High-Dividend ETFs?).
WisdomTree U.S. High Dividend Fund (DHS - Free Report)
WisdomTree U.S. High Dividend Fund offers exposure to U.S. high dividend-yielding companies by tracking the WisdomTree U.S. High Dividend Index. It holds 376 stocks in its basket, with key holdings in financials, energy, utilities, consumer staples and healthcare. WisdomTree U.S. High Dividend Fund has amassed $1.1 billion in its asset base. It charges 38 bps in fees per year and has a Zacks ETF Rank #3.