Sanghamitra Saha
·3 min read
While the stock market recorded an incredible rally in 2023, exceeding all expectations, there were valid reasons to approach the market bulls with caution. The worries over the continuation of the AI boom, global growth slowdown and still-present inflationary pressure triggered concerns in some investors’ minds about market bubbles.
There were concerns among analysts that this bullish run might be at risk as the market approached new highs. Although inflation has cooled from its highs last year, there is still a significant risk that it could rebound due to lingering economic pressures, such as rising oil prices on geopolitical concerns and still-strong labor market. If this was not enough, U.S. regional banking sector has dwindled in 2023.
No wonder, investors with lower appetite for risks will take shelter in dividend ETFs to weather afore-mentioned fears.
Why Dividend ETFs are Good Bets
High dividend ETFs can be a good investment during times of economic uncertainty, as they provide a steady source of income regardless of market conditions. These types of stocks and ETFs typically pay out a higher percentage of their profits as dividends than other stocks, which means that they can make up for the capital losses, if there is any.
On the other hand, 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 act as a quality exposure. Additionally, aristocrats tend to skew the portfolio to less-volatile sectors and mature companies.
ETFs in Focus
Against this backdrop, below we highlight a few dividend ETFs that have beaten the S&P 500 (up 24.2%) this year.
SPDR S&P Emerging Markets Dividend ETF (EDIV) – Up 40.9%; Yield 4.26% annually
The underlying S&P Emerging Markets Dividend Opportunities Index includes 100 tradable, exchange-listed common stocks from emerging market countries that offer high dividend yields. The fund charges 49 bps in fees.
WisdomTree Japan Hedged SmallCap Equity Fund (DXJS) – Up 37.9%; Yield 2.71% annually
The underlying WisdomTree Japan Hedged SmallCap Equity Index is designed to provide exposure to the small capitalization segment of the Japanese equity markets while at the same time neutralizing exposure to fluctuations of the Japanese Yen movements relative to the U.S. dollar. The fund charges 58 bps in fees.
First Trust NASDAQ Technology Dividend Index Fund (TDIV) – Up 37.3%; Yield 1.74% annually
The underlying NASDAQ Technology Dividend Index includes up to 100 Technology and Telecommunications companies that pay a regular or common dividend. The fund charges 50 bps in fees.
Nationwide Nasdaq-100 Risk-Managed Income ETF (NUSI) – Up 31.3%; Yield 7.34% annually
This ETF is active and does not track a benchmark. The fund targets high monthly income. It follows rules-based, options trading strategy that seeks to produce high income using the Nasdaq-100 Index. The expense ratio of the fund is 0.68%.
Dividend Performers ETF (IPDP) – Up 30.7%; Yield 1.87% annually
The Dividend Performers ETF seeks current income with capital appreciation being a secondary goal. The fund invests in dividend-paying U.S. stocks paired with an S&P 500 index-based option overlay for additional income. The expense ratio is 1.22%.
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SPDR S&P Emerging Markets Dividend ETF (EDIV): ETF Research Reports
WisdomTree Japan Hedged SmallCap Equity ETF (DXJS): ETF Research Reports
First Trust NASDAQ Technology Dividend ETF (TDIV): ETF Research Reports
Nationwide Nasdaq-100 Risk-Man (NUSI): ETF Research Reports
Dividend Performers ETF (IPDP): ETF Research Reports
