There’s Durability in These Dividend ETFs
The S&P 500 is down 17.4% year-to-date, prompting many investors to think there’s nowhere to hide in the world of equities.
They’re not wrong to feel that way. After all, borderline bear markets try investors’ souls. Making matters worse for income investors – or any seeking a respite from volatility – is that with the Federal Reserve hiking interest rates, bonds are slumping. The widely followed Bloomberg Barclays U.S. Aggregate Bond Index is lower by 10% this year.
Fortunately, there are places for investors turn and one of the most credible options is also one of the most familiar: Dividend stocks. To be fair, not all dividend stocks and exchange-traded funds are trading higher this year. Many are not. However, many are outperforming the broader market – admittedly not a difficult task – while some are generating positive returns.
Those are points to consider, particularly with bonds slumping and more interest rate increases on the way. Consider the following dividend ETFs to make it through these tough times.
ALPS Sector Dividend Dogs ETF (SDOG)
The ALPS Sector Dividend Dogs ETF (SDOG) is a star among ETFs this year, dividend and otherwise. A year-to-date of 1% doesn’t sound like much, but in 2022, it’s downright impressive.
“Admittedly, some of the outperformance from income investments can be attributed to avoidance of weaker sectors like tech and communication services,” writes Alerian analyst Stacey Morris.
That comes by way of SDOG essentially equal weighting sectors (it excludes real estate), meaning the fund is underweight growth-heavy sectors relative to the broader market while being overweight standouts such as energy and consumer staples. Additionally, many SDOG components have payout growth potential, indicating there’s an element of quality to this high-dividend, value ETF.
“Dividend strategies focused on quality tend to be more defensive and have less exposure to technology, which has supported performance,” concludes Morris. “With interest rates rising, bonds have not surprisingly fallen, but the benchmark bond indexes shown have still fared better than the broader market.”
WisdomTree U.S. LargeCap Dividend Fund (DLN)
The WisdomTree U.S. LargeCap Dividend Fund (DLN) isn’t in the black this year, but it’s outperforming the S&P 500 by a wide margin while yielding 2.16%. Closing in on its 16th birthday, DLN has long been viewed as value strategy – a positive trait today – but it has a penchant for topping the broader value ETF category.
DLN “took a unique approach by dividend weighting the largest companies in the U.S. equity market. Because of its emphasis on dividends, it has been classified as a value strategy throughout its lifetime,” notes WisdomTree analyst Brian Manby. “Although value strategies experienced headwinds in the decade and a half after the global financial crisis (due to the attractiveness of growth strategies in a historically low interest rate environment), DLN remained a top performer within its value cohort.”
Not surprisingly, the $3.3 billion DLN is underweight growth sectors and fortunately, like the aforementioned SDOG, it’s overweight consumer staples and energy. DLN also pays a monthly dividend.
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
The Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) is another one of the stars of the dividend ETF fray this year as highlighted by a 2.58% gain and that comes along with the benefit of a 3.79% yield. As its name implies, SPHD marries two popular investment concept and the pair are clearly working for investors this year.
“Stocks with low volatility and healthy dividends often go hand in hand,” reports Jesse Pound for CNBC. “Those companies tend to have stable, predictable earnings that can serve as safe havens during market downturns, but they may underperform when investors are expecting an acceleration of economic growth.”
Not surprisingly, SPHD is heavily allocated to defensive sectors such as consumer staples and utilities. Boring, but beautiful in the current climate. Like the aforementioned DLN, SPHD delivers a monthly payout.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.