Tap Dividend Aristocrat ETFs Amid Current Market Upheavals

Investors are keenly eyeing the consumer price index report for May. They are expecting the surge in the core inflation index (excluding food and energy) to slow down. However, the increase in energy, food, rent and health-care costs might keep inflation levels high in the month.

Wall Street has been feeling the burden of market participants’ concerns about the inflation levels, the Federal Reserve’s rate hike measures and the U.S. economy’s health. All the major averages closed in the red on Jun 9. The Dow Jones Industrial Average was down 1.9% on the same day. The other two broad market indices, the S&P 500 and the Nasdaq composite also lost 2.4% and 2.8% each on Jun 9.

Commenting on the market conditions, Michael Skordeles, senior U.S. macro strategist at Truist said that “There’s a lot of headfakes going on. And unfortunately we’re not going to get a lot of clean looks at the economy, whether the U.S. economy or certainly the global economy, for quite some time because there’s just so many things that are hard to decipher,” as mentioned in a CNBC article.

The economic data is also pointing toward sluggish U.S. economic recovery. The persistently high inflation levels are weighing on consumers’ confidence in the United States. The growing supply-chain disturbances emanating from the ongoing Russia-Ukraine war crisis and the recent COVID-led lockdown in China triggered concerns over further rising inflation levels.

The Conference Board's measure of consumer confidence index slipped to 106.4 in May 2022 from an upwardly revised reading of 108.6 in April. The metric continues to be below the pre-pandemic level of 132.6 achieved in February 2020 but is definitely above its pandemic lows.

JPMorgan (JPM) CEO Jamie Dimon also mentioned that he sees an economic hurricane to hit soon, per a CNBC article. Dimon is concerned about the Russia-Ukraine conflict already escalating essential commodity prices, including food and oil. This can affect the U.S. economic health and its recovery from the pandemic slumps.

Jamie Dimon is also unnerved by the Federal Reserve’s impending quantitative tightening program this month. The central bank will start shrinking its nearly $9-trillion worth of balance sheet (per a CNBC article).

Market experts believe that Americans will continue to be bothered by the Russia-Ukraine strife. Consumer spending might also be affected if the inflation levels remain high.

Why Consider Dividend Aristocrat ETFs?

Dividend aristocrats are blue-chip dividend-paying companies with a long track record of increasing dividend payments year over year. Moreover, dividend aristocrat funds give investors dividend growth opportunities compared to other products in the space but might not necessarily have the highest yields.

‘Dividend aristocrats’ or ‘dividend growers’ are mostly deemed the smartest way to deal with market turmoil. The inclination toward dividend investing is rising because of easing monetary policy on the global front, the market uncertainty triggered by the pandemic and deceleration in global growth. Demand for these funds is mainly driven by their characteristic of being the major source of stable 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 against simple dividend-paying stocks or those with high yields. As a result, these products deliver an excellent combination of annual dividend growth and capital-appreciation opportunity and are most beneficial to risk-averse long-term investors.

Against this backdrop, let’s look at some ETFs that investors can consider:

Vanguard Dividend Appreciation ETF (VIG - Free Report)

Vanguard Dividend Appreciation ETF is the largest and the most popular ETF in the dividend space, with an AUM of $64.23 billion. VIG follows the S&P U.S. Dividend Growers Index. VIG charges 6 basis points (bps) in annual fees (read: 5 Recession-Proof ETFs for Your Portfolio).

SPDR S&P Dividend ETF (SDY - Free Report)

SPDR S&P Dividend ETF seeks to provide investment results that before fees and expenses generally correspond to the total return performance of the S&P High Yield Dividend Aristocrats Index. The index screens companies that consistently increased their dividend for at least 20 consecutive years. SDY has an AUM of $21.85 billion. SDY charges 35 bps of fees per year (read: Best ETF Ideas for the Second Half of 2022).

iShares Select Dividend ETF (DVY - Free Report)

iShares Select Dividend ETF provides exposure to broad-cap U.S. companies with a consistent history of dividends and tracks the Dow Jones U.S. Select Dividend Index. DVY has an AUM of $23.35 billion. DVY charges 38 bps as fees per year (as stated in the prospectus).

ProShares S&P 500 Dividend Aristocrats ETF (NOBL - Free Report)

ProShares S&P 500 Dividend Aristocrats ETF seeks investment results before fees and expenses that track the performance of the S&P 500 Dividend Aristocrats Index. NOBL is the only ETF focusing exclusively on the S&P 500 Dividend Aristocrats, which are high-quality companies that not just paid out dividends but also raised the same for at least 25 consecutive years, with most doing so for 40 years or more. NOBL amassed $10.32 billion in its asset base. NOBL has an expense ratio of 0.35%.

iShares Core Dividend Growth ETF (DGRO - Free Report)

DGRO provides exposure to companies boasting a history of sustained dividend growth by tracking the Morningstar US Dividend Growth Index. DGRO has an AUM of $23.17 billion. iShares Core Dividend Growth ETF charges 8 bps of fees a year.

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