With high inflation and rising interest rates, the share prices of growth stocks have been trending downwards. Therefore the once outperforming sectors like technology are now lagging behind the more traditional sectors like energy, financials, and materials. Another caveat of the traditional sector is that the companies return money to shareholders through dividends.
Meanwhile, Morningstar, an American financial services firm, offered three dividends ETFs to keep on your watchlist.
Vanguard Dividend Appreciation ETF (NYSEARCA: VIG)
This ETF tracks the S&P U.S. Dividend Growers Index, holding 289 stocks that increase their dividend yield consistently year in and year out. Some of the larger holdings of the ETF include household names like Microsoft (NASDAQ: MSFT), Visa (NYSE: V), and Johnson & Johnson (NYSE: JNJ). Therefore, despite a smaller yield of 1.75%, the continuous compounding effect of increasing dividends makes it attractive.
“The benchmark zeros in on U.S. stocks that have grown their dividends for at least 10 years in a row. It then weeds out the 25 highest yielding stocks that pass this test, in an effort to sidestep potential value traps. It then weights those that are left by their float-adjusted market capitalization. Screening for durable growing dividends yields a sturdy portfolio of industry titans.”
Year-to-date (YTD), the ETF is down over 15%, as the tech titans in the portfolio have taken a hit. Shares now trade below all daily Simple Moving Averages (SMAs), possibly offering a solid entry point, as the fund had 11.96% average annual returns over the past ten years.
Schwab US Dividend Equity ETF (NYSEARCA: SCHD)
On the whole, this ETF tracks the Dow Jones U.S. Dividend 100 Index, which focuses on high dividend yields and offers solid exposure to value stocks. Some of the notable holdings include Coca-Cola (NYSE: KO), Pfizer (NYSE: PFE), and International Business Machines (NYSE: IBM).
“Adding a dash of yield gives SCHD a value bent, which has been a boon to investors in recent months as markets have tumbled, and value stocks have proven relatively resilient. While the Morningstar U.S. market index had dropped 18.2%for the year to date through May 24, SCHD shed just 5.2% of its value.”
YTD, the ETF is down over 11%, trading below all SMAs, possibly offering a solid entry position as the current price action was last seen in March of 2021. It seems as if the trading range oscillates between $69.90 and $73.90.
Vanguard International High Dividend Yield Index (NASDAQ: VYMI)
The final pick by Morningstar is an ETF that invests in public equity markets of the global ex-US region. The focus It maintains is stocks of companies operating across diversified sectors, belonging to the growth and value niches across diversified market capitalization.
“The index starts with large and mid-cap stocks in the FTSE all-world ex-US index. Strips out REITs and ranks them by their expected dividend yield over the next 12 months. The index then selects those stocks representing the higher-yielding half of the eligible dividend-paying universe. Focusing on dividend yield gives the portfolio a value orientation and can be a source of risk.”
VYMI is down over 15% YTD, trading below all daily SMAs and touching the October 2020 lows. While having more risk than the other two ETFs, there is possibly a good entry point at the current price.
Finally, the diversification offered by ETFs often can help survive volatile markets, as these ETFs hold a few dozen shares, maybe more than an average retail investor’s portfolio.
While waiting out the storms on the market, concentrating on high yields and dividend payments may offer a source of income, and the following three ETFs may give some shelter.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.