A Quick Guide To Dividend Aristocrat ETFs

In a near-zero interest environment and amid a series of drastic dividend cuts, investors are seeking consistent and safe income, thereby driving the appeal for dividend investing. Additionally, volatility and market uncertainty led investors flock to dividend products.

Dividend-focused products offer both safety in the form of payouts and stability in the form of mature companies that are less volatile to the large swings in stock prices. The dividend-paying securities are major sources of consistent income for investors when returns from equity markets are at risk. Further, these products are proven outperformers over the long term.

While there are plenty of options in the dividend ETF world, honing in on the dividend aristocrats could be the most beneficial way in the current market environment.

Why Dividend Aristocrats?

Dividend aristocrats are the blue-chip dividend-paying companies with a long history of raising dividend payments year over year. These generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis. Additionally, aristocrats tend to skew the portfolio to less-volatile sectors and mature companies.

Investors should note that the dividend aristocrat funds offer more dividend growth opportunities when compared to the other products in the space but might not necessarily have the highest yields. Further, these products lead to a healthy portfolio with a greater scope of capital appreciation as opposed to the simple dividend-paying stocks or those with high yields.

As a result, these products provide a nice combination of annual dividend growth and capital appreciation opportunity and are mainly suitable for risk-averse long-term investors. For them, we have highlighted some popular ETFs that could be excellent choices:

Vanguard Dividend Appreciation ETF (VIG - Free Report)

This is the largest and most popular ETF in the dividend space with AUM of $41.1 billion. The fund follows the Nasdaq US Dividend Achievers Select Index, which is composed of high-quality stocks that have a record of raising dividend every year. It holds 188 securities in the basket with none accounting for more than 5.9% share. The fund charges 8 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

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