The world’s largest economy seems to be on the path of recovery from the pandemic-led slowdown. Markedly, accelerated vaccine distribution, strong fiscal stimulus support and the reopening of non-essential businesses are expected to expedite the economic recovery pace.
Furthermore, there are certain economic data releases, which are pointing toward economic recovery. Notably, the release of robust job and manufacturing data majorly buoyed market participants' optimism. The Department of Labor reported that the U.S. economy added 559,000 jobs in May compared with the upwardly revised 278,000 payrolls included in April, as mentioned in a CNBC article.
Going by the Fed’s recently-released data, total industrial production rose 0.8% in May. Going on, there was a 0.9%, 1.2% and 0.2% rise, respectively, in manufacturing output, mining and utilities production. Total industrial production rose 16.3% year over year in May.
Meanwhile, the Commerce Department stated that U.S. retail and food services sales in May declined 1.3% to $620.2 billion following a revised reading of a 0.9% rise in April. The decline was steeper than expected with reduced expenditures on areas such as automobiles, home furnishing, electronic stores and building supplies. However, demand for apparel as well as health and beauty products continues to be strong. We note that retail sales surged 28.1% from May last year.
Spooking investors, the annual inflation rate has accelerated to a higher-than-expected 5.0% in May. Excluding volatile food and energy prices, the "core" consumer price index (CPI) rose 3.8% year over year, without seasonal adjustment. It marked the largest one-year increase since the period ending June 1992.
According to the Commerce Department, another major inflation indicator, core personal consumption expenditures (PCE) price index, used by the Federal Reserve to set policy climbed 3.4% year over year in May, per a CNBC article. Notably, it registered the biggest gains since April 1992 and was on par with Wall Street estimates. Going on, the PCE index was up 3.9% for the year and 0.4% for the month after including volatile food and energy prices, according to a CNBC article.
Investors are increasingly concerned that rising inflation may hurt corporate margins and profits. They also fear that the consistent rise in inflation may build pressure on the Federal Reserve to tighten the monetary policy, according to a CNBC article.
Why Invest in Dividend Aristocrats ETFs?
Dividend aristocrats are blue-chip dividend-paying companies with a long history of increasing dividend payments year over year. Moreover, dividend aristocrat funds provide investors with dividend growth opportunities in comparison to other products in the space but might not necessarily have the highest yields.
‘Dividend aristocrats’ or ‘dividend growers’ are mostly deemed to be the smartest way to deal with market turmoil. Notably, the inclination toward dividend investing has been rising due to easing monetary policy on the global front, and market uncertainty triggered by the pandemic and deceleration in global growth. The demand for these funds is mostly driven by their characteristic of being the major source of consistent income for investors when returns from the equity markets are uncertain.
These products also form a strong portfolio, with a higher scope of capital appreciation as against simple dividend-paying stocks or those with high yields. As a result, these products deliver a nice combination of annual dividend growth and capital-appreciation opportunity and are mostly good for risk adverse long-term investors.
Against this backdrop, let’s take a look at some ETFs that investors can consider:
Vanguard Dividend Appreciation ETF VIG
This is the largest and the most popular ETF in the dividend space, with AUM of $59.05 billion. The fund follows the NASDAQ US Dividend Achievers Select Index, composed of high-quality stocks, with a record of raising dividends every year. It charges 6 basis points (bps) in annual fees (read: 4 ETF Zones to Invest in As Volatility Spikes).
SPDR S&P Dividend ETF SDY
This fund seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P High Yield Dividend Aristocrats Index. The index screens companies that have consistently increased their dividend for at least 20 consecutive years and weights the stocks by yield. The fund has AUM of $19.84 billion. It charges 35 bps in fees per year (read: ETF Strategies to Combat the FOMC June Meeting Worries).
iShares Select Dividend ETF DVY
The fund provides exposure to broad-cap U.S. companies with a consistent history of dividends and tracks the Dow Jones U.S. Select Dividend Index. The fund has AUM of $18.75 billion. It charges 39 bps in fees per year (read: A Guide to 10 Most-Popular Dividend ETFs).
ProShares S&P 500 Dividend Aristocrats ETF NOBL
This fund seeks investment results, before fees and expenses that track the performance of the S&P 500 Dividend Aristocrats Index. It is the only ETF focusing exclusively on the S&P 500 Dividend Aristocrats — high-quality companies that have not just paid dividends but raised them for at least 25 consecutive years, with most doing so for 40 years or more. NOBL has amassed $8.59 billion in its asset base. It has an expense ratio of 0.35%.
iShares Core Dividend Growth ETF DGRO
This fund provides exposure to companies boasting a history of sustained dividend growth by tracking the Morningstar US Dividend Growth Index. The fund has AUM of $19.11 billion. It charges 8 bps in fees per year.
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SPDR S&P Dividend ETF (SDY): ETF Research Reports
Vanguard Dividend Appreciation ETF (VIG): ETF Research Reports
ProShares S&P 500 Dividend Aristocrats ETF (NOBL): ETF Research Reports
iShares Select Dividend ETF (DVY): ETF Research Reports
iShares Core Dividend Growth ETF (DGRO): ETF Research Reports
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