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Dividend investing remains a popular strategy for investors in any market. Though it does not offer dramatic price appreciation, the strategy is a major source of consistent income for investors.
This is especially true as dividend-focused products offer safety in the form of payouts and stability through mature companies that are less volatile to the large swings in stock prices. Dividend-paying securities are a major source of consistent income for investors when returns from equity markets are at risk. Further, these products are proven outperformers over the long term.
While there are plenty of options in the dividend ETF world, zeroing in on the dividend aristocrats could be a wise move amid the market turmoil.
Why Dividend Aristocrats?
Dividend aristocrats are blue-chip dividend-paying companies with a long history of increasing dividend payments year over year. These generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis. Additionally, aristocrats tend to skew the portfolio to less volatile sectors and mature companies.
Additionally, these stocks have superior fundamentals that make dividend growth a quality and promising long-term investment. These companies have a sustainable business model, a long track of profitability, rising cash flows, good liquidity, a strong balance sheet and some value characteristics. Further, a history of strong dividend growth indicates a likely hike in the future (read: Best-Performing Dividend ETFs of the First Nine Months of 2024).
Investors should note that the dividend aristocrat funds offer more dividend growth opportunities compared to the other products in the space but might not necessarily have the highest yields. Further, these products lead to a healthy portfolio with a greater scope of capital appreciation as opposed to the simple dividend-paying stocks or those with high yields.
As a result, these products provide a nice combination of annual dividend growth and capital appreciation opportunity and are mainly suitable for risk-averse, long-term investors. For them, we have highlighted some popular ETFs that could be excellent choices:
Vanguard Dividend Appreciation ETF is the largest and the most popular ETF in the dividend space, with AUM of $85.4 billion and an average daily volume of 675,000 shares. The fund follows the S&P U.S. Dividend Growers Index, which is composed of large-cap stocks that have a record of raising dividends every year. Vanguard Dividend Appreciation ETF holds 337 securities in the basket, with key holdings in technology, financials, healthcare, and industrials. The fund charges 6 basis points (bps) in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
With AUM of $21.4 billion, SPDR S&P Dividend ETF provides well-diversified exposure to 133 U.S. stocks that have consistently increased their dividend for at least 20 consecutive years. This can be done by tracking the S&P High Yield Dividend Aristocrats Index. Industrials and consumer staples are the top two sectors with 18% allocation each. SPDR S&P Dividend ETF charges 35 bps in fees and trades in an average daily of 218,000 shares. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
iShares Select Dividend ETF provides exposure to the companies with a consistent five-year history of dividend payments. It follows the Dow Jones U.S. Select Dividend Index and holds 98 securities in its basket, with key holdings in utilities and financial sectors. iShares Select Dividend ETF has AUM of $20.1 billion and charges 38 bps in fees per year from investors. It trades in an average daily volume of 357,000 shares and has a Zacks ETF Rank #3 with a Medium risk outlook.
With AUM of $62.2 billion, Schwab U.S. Dividend Equity ETF offers exposure to 103 high-dividend yielding U.S. companies that have a record of consistent dividend payments supported by fundamental strength based on financial ratios and ample liquidity. This can be easily done by tracking the Dow Jones U.S. Dividend 100 Index. Schwab U.S. Dividend Equity ETF charges 6 bps in annual fees and trades in an average daily volume of 3 million shares. It has a Zacks ETF Rank #3 with a Medium risk outlook.
iShares Core Dividend Growth ETF provides exposure to companies with a history of consistently growing dividends by tracking the Morningstar US Dividend Growth Index. It holds 413 stocks in its basket with key holdings in financials, information technology, healthcare, industrials and consumer staples sectors. iShares Core Dividend Growth ETF has accumulated $30 billion in its asset base and charges 8 bps in fees per year. It trades in an average daily volume of 1.2 million shares and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.
ProShares S&P 500 Aristocrats ETF provides exposure exclusively to high-quality companies that have not just paid dividends but have raised them in at least 25 consecutive years, with most doing so for 40 years or more. It follows the S&P 500 Dividend Aristocrats Index and holds 66 securities in its basket, with key holdings in consumer staples and industrials. ProShares S&P 500 Aristocrats ETF has amassed $12.5 billion in its asset base and trades in an average daily volume of 440,000 shares. It has an expense ratio of 0.35% and a Zacks ETF Rank #3 with a Medium risk outlook (read: Tap Dividend ETFs as Wall Street Wobbles).
WisdomTree U.S. Quality Dividend Growth Fund (DGRW - Free Report)
WisdomTree U.S. Quality Dividend Growth Fund tracks the WisdomTree U.S. Quality Dividend Growth Index and offers diversified exposure to U.S. dividend-paying stocks with both growth and quality characteristics like long-term earnings growth expectations and three-year historical averages for return on equity and return on assets. It has gathered $14.6 billion in its asset base and charges 28 bps in fees per year from its investors. WisdomTree U.S. Quality Dividend Growth Fund holds 299 securities in its basket, with key holdings in information technology, healthcare and industrials sectors. It trades in a volume of 544,000 per share on average and has a Zacks ETF Rank #2 with a Medium risk outlook.
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A Guide to Dividend Aristocrat ETFs
Dividend investing remains a popular strategy for investors in any market. Though it does not offer dramatic price appreciation, the strategy is a major source of consistent income for investors.
This is especially true as dividend-focused products offer safety in the form of payouts and stability through mature companies that are less volatile to the large swings in stock prices. Dividend-paying securities are a major source of consistent income for investors when returns from equity markets are at risk. Further, these products are proven outperformers over the long term.
While there are plenty of options in the dividend ETF world, zeroing in on the dividend aristocrats could be a wise move amid the market turmoil.
Why Dividend Aristocrats?
Dividend aristocrats are blue-chip dividend-paying companies with a long history of increasing dividend payments year over year. These generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis. Additionally, aristocrats tend to skew the portfolio to less volatile sectors and mature companies.
Additionally, these stocks have superior fundamentals that make dividend growth a quality and promising long-term investment. These companies have a sustainable business model, a long track of profitability, rising cash flows, good liquidity, a strong balance sheet and some value characteristics. Further, a history of strong dividend growth indicates a likely hike in the future (read: Best-Performing Dividend ETFs of the First Nine Months of 2024).
Investors should note that the dividend aristocrat funds offer more dividend growth opportunities compared to the other products in the space but might not necessarily have the highest yields. Further, these products lead to a healthy portfolio with a greater scope of capital appreciation as opposed to the simple dividend-paying stocks or those with high yields.
As a result, these products provide a nice combination of annual dividend growth and capital appreciation opportunity and are mainly suitable for risk-averse, long-term investors. For them, we have highlighted some popular ETFs that could be excellent choices:
Vanguard Dividend Appreciation ETF (VIG - Free Report)
Vanguard Dividend Appreciation ETF is the largest and the most popular ETF in the dividend space, with AUM of $85.4 billion and an average daily volume of 675,000 shares. The fund follows the S&P U.S. Dividend Growers Index, which is composed of large-cap stocks that have a record of raising dividends every year. Vanguard Dividend Appreciation ETF holds 337 securities in the basket, with key holdings in technology, financials, healthcare, and industrials. The fund charges 6 basis points (bps) in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
SPDR S&P Dividend ETF (SDY - Free Report) )
With AUM of $21.4 billion, SPDR S&P Dividend ETF provides well-diversified exposure to 133 U.S. stocks that have consistently increased their dividend for at least 20 consecutive years. This can be done by tracking the S&P High Yield Dividend Aristocrats Index. Industrials and consumer staples are the top two sectors with 18% allocation each. SPDR S&P Dividend ETF charges 35 bps in fees and trades in an average daily of 218,000 shares. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
iShares Select Dividend ETF (DVY - Free Report)
iShares Select Dividend ETF provides exposure to the companies with a consistent five-year history of dividend payments. It follows the Dow Jones U.S. Select Dividend Index and holds 98 securities in its basket, with key holdings in utilities and financial sectors. iShares Select Dividend ETF has AUM of $20.1 billion and charges 38 bps in fees per year from investors. It trades in an average daily volume of 357,000 shares and has a Zacks ETF Rank #3 with a Medium risk outlook.
Schwab U.S. Dividend Equity ETF (SCHD - Free Report)
With AUM of $62.2 billion, Schwab U.S. Dividend Equity ETF offers exposure to 103 high-dividend yielding U.S. companies that have a record of consistent dividend payments supported by fundamental strength based on financial ratios and ample liquidity. This can be easily done by tracking the Dow Jones U.S. Dividend 100 Index. Schwab U.S. Dividend Equity ETF charges 6 bps in annual fees and trades in an average daily volume of 3 million shares. It has a Zacks ETF Rank #3 with a Medium risk outlook.
iShares Core Dividend Growth ETF (DGRO - Free Report)
iShares Core Dividend Growth ETF provides exposure to companies with a history of consistently growing dividends by tracking the Morningstar US Dividend Growth Index. It holds 413 stocks in its basket with key holdings in financials, information technology, healthcare, industrials and consumer staples sectors. iShares Core Dividend Growth ETF has accumulated $30 billion in its asset base and charges 8 bps in fees per year. It trades in an average daily volume of 1.2 million shares and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.
ProShares S&P 500 Aristocrats ETF (NOBL - Free Report) )
ProShares S&P 500 Aristocrats ETF provides exposure exclusively to high-quality companies that have not just paid dividends but have raised them in at least 25 consecutive years, with most doing so for 40 years or more. It follows the S&P 500 Dividend Aristocrats Index and holds 66 securities in its basket, with key holdings in consumer staples and industrials. ProShares S&P 500 Aristocrats ETF has amassed $12.5 billion in its asset base and trades in an average daily volume of 440,000 shares. It has an expense ratio of 0.35% and a Zacks ETF Rank #3 with a Medium risk outlook (read: Tap Dividend ETFs as Wall Street Wobbles).
WisdomTree U.S. Quality Dividend Growth Fund (DGRW - Free Report)
WisdomTree U.S. Quality Dividend Growth Fund tracks the WisdomTree U.S. Quality Dividend Growth Index and offers diversified exposure to U.S. dividend-paying stocks with both growth and quality characteristics like long-term earnings growth expectations and three-year historical averages for return on equity and return on assets. It has gathered $14.6 billion in its asset base and charges 28 bps in fees per year from its investors. WisdomTree U.S. Quality Dividend Growth Fund holds 299 securities in its basket, with key holdings in information technology, healthcare and industrials sectors. It trades in a volume of 544,000 per share on average and has a Zacks ETF Rank #2 with a Medium risk outlook.