Dividends Are Dynamic With These ETFs


There’s no doubt about it. It sure feels as though nothing is working in the equity market this year and with the S&P 500 down 15.48%, that feeling is confirmed for many investors.

On the bright side, believe it or not, there is some positivity to speak of in 2022 – there are dividends. Data confirm payouts are growing, but that’s only part of the good news.

“Globally, first quarter dividends jumped by 11% on a headline basis to a total of $302.5bn, also a record for the seasonally quieter first three months of the year,” according to a statement issued by Janus Henderson last month referencing its Janus Henderson Global Dividend Index. “Underlying growth was even stronger at 16.1%. Janus Henderson’s analysis shows that dividends have more than doubled since 2009, when the Index launched.”

As noted above, that’s only part of the good news. In the world of dividend exchange-traded funds, there are examples of both high-dividend and payout growth products that are easily beating the broader market year-to-date. In fact, some dividend ETFs are even generating positive returns.

That’s excellent news for investors at a time when bond yields are soaring and volatility is high. Accounting for those factors, some of the following dividend ETFs may be worth considering.

First Trust Rising Dividend Achievers ETF (RDVY)

The First Trust Rising Dividend Achievers ETF (RDVY) follows the Nasdaq US Rising Dividend Achievers Index and that benchmark’s methodology is integral to the RDVY thesis. The index mandates that its components are currently delivering a payout above what was paid “in the trailing twelve-month period three and five years prior.”

With so many companies boosting payouts, that may not be the most stringent criteria, but RDVY has other avenues for sourcing quality and reliable, long-term dividend growth – traits that make the fund suitable for a broad swath of investors.

“Cash to debt ratios must be above 50%, providing a margin of safety for dividend policies. Finally, 50 stocks with the most attractive combination of dividend growth, dividend yield and payout ratio are selected, subject to a maximum of 30% from any one sector,” according to First Trust research. “The stocks are equally weighted initially and on each rebalancing effective date. The portfolio is reconstituted annually and rebalanced quarterly.”

RDVY is lower year-to-date, but it’s beating the S&P 500.

VictoryShares Dividend Accelerator ETF (VSDA)

The VictoryShares Dividend Accelerator ETF (VSDA) is another dividend growth, and it follows the Nasdaq Victory Dividend Accelerator Index. Points in favor of VSDA include a value tilt that’s well valuable as interest rates rise and a dividend growth purview that can provide some buffer against rampant inflation.

“In fact, expectations for higher interest rates have increased over the past several months, and now the market is pricing in several more aggressive rate hikes ahead, according to fed funds futures,” according to Victory Capital. “In times when inflation rises, companies with pricing power may be better able to improve margins versus those companies with potential future earnings (i.e. more speculative growth stocks).”

VSDA yields 1.59% and is beating the S&P 500 by more than 700 basis points year-to-date.  Add to that, roughly half of this dividend ETF’s components have payout increase streaks spanning a minimum of 25 years.

ALPS International Sector Dividend Dogs ETF (IDOG)

Owing to a flat performance and a dividend yield of 4.23%, the ALPS International Sector Dividend Dogs ETF (IDOG) is one of the 2022 stars among dividend ETFs. Not only is outperforming broader domestic equity benchmarks, it’s obliterating the MSCI EAFE Index – a relevant comparison for this fund.

IDOG is a high-dividend value strategy indicating that, international exposure aside, it’s built for this environment, and it’s strutting its stuff to that effect.

“Investors, including those seeking income, tend to naturally favor that which is more familiar and better understood, resulting in a home country and familiarity bias,” notes Alerian’s Stacey Morris. “For U.S. investors, performance trends have likely reinforced those biases, as domestic benchmarks have handily outperformed international developed markets over the last decade thanks in part to their significant exposure to the technology sector. With the volatility in equities this year and weakness in technology amid rising interest rates and supply chain issues – not to mention U.S. consumer confidence plumbing decade-lows in May – it could be an opportune time for income investors to reconsider their international exposure.”

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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