Concerns over rising interest rates and bond yields have dampened the appeal for the dividend stocks and ETFs for the most part of the year (read: Are Dividend ETFs Losing Their Multi-Year Shine?).

This is because the Fed is on track to raise interest rates sometime later this year for first time since 2006 given the substantial improvement in the economy after the first quarter slump –– though the timing remains unclear. However, the pace of increase would be gradual and slower than market expectation, owing to sill low inflation and job market recovery. This might compel investors to recycle their portfolio in the dividend space.

Dividend Growth Slowing Down

Dividends, which account for more than 40% of total returns over the longer term, have been badly hit by the meltdown of the energy sector and the resultant payout cuts. As per the S&P Dow Jones Indices, U.S. dividend net increases (increases less decreases) slid 0.6% year over year to $12.5 billion in the second quarter of 2015. From a 12-month look, dividend net increases declined in double digits.

Only 562 U.S. companies reported dividend hikes compared to 696 companies in the year-ago quarter while 85 reduced their dividend versus 57 in the year-ago quarter. Notably, the energy sector represents 45% of all dividend cuts during the quarter. The slowing pace of dividend growth creates an opportunity to buy the dividend products at a cheaper price.

Why An Entry Point?

Currently, the stock market is trapped in a web of uncertainty, especially with China and Greece turmoil. Further, global growth concerns, a strong dollar and lower oil prices are adding to the worries (read: Inside The Crash in China ETFs).

On the other hand, the U.S. economy is growing at a moderate pace, injecting continued bullishness into the stock market. This is primarily thanks to continued job gains, recovering housing fundamentals, increased consumer confidence, higher spending power and most importantly the merger frenzy.

Not to forget, most of the U.S. large companies are sitting on a huge pile of cash and are in a position to increase the payouts to their shareholders. The cash reserves will ensure that these companies are not plagued by financial trouble in a rising interest rate environment. As a result, focus on dividend growth securities or the application of some niche strategies to dividend investing rather than betting on the top yielders could be more helpful for an uphill ride in the current rocky market.

How to Play?

Below, we have highlighted five dividend ETFs that offer excellent dividend growth potential, any of which could be a solid pick for investors in the long term:  

Vanguard Dividend Appreciation ETF ((VIG - ETF report))

This is the largest and most popular ETF in the dividend space with AUM of $19.9 billion and average daily volume of more than 807,000 shares. The fund follows the NASDAQ US Dividend Achievers Select Index, which is composed of high quality stocks that have a record of increasing dividends for at least 10 years. Holding 181 stocks in its basket, the product is pretty spread across components with none holding more than 4.3% of total assets.

Further, from a sector look, industrials take the top spot at 22.8% while consumer goods, consumer services, technology and health care round off the top five with double-digit exposure each. VIG is one of the cheapest funds in this space charging 10 bps in annual fees. It has lost 0.6% so far in the year and has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook (read: 3 Cheap Value ETFs with Strong Dividend).

SPDR S&P Dividend ETF ((SDY - ETF report))

This fund provides exposure to the 102 U.S. stocks that have been consistently increasing their dividends every year for at least 25 years. It follows the S&P High Yield Dividend Aristocrats Index and has amassed $12.9 billion in AUM. Volume is solid, exchanging more than 747,000 shares in hand, while expense ratio came in at 0.35%.

The product is widely diversified across components as each security accounts for less than 2.70% of total assets. Financials is the top sector taking up one-fourth of the portfolio while consumer staples (14.5%), industrials (14.1%), utilities (11.8%) and materials (11%) round off the next spots. The ETF is down nearly 1% and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook.

WisdomTree U.S. Dividend Growth ETF ((DGRW - ETF report))

This fund tracks the WisdomTree U.S. Dividend Growth Index and offers diversified exposure to U.S. dividend-paying stocks with both growth and quality characteristics. It has gathered $519.1 million in its asset base and trades in volume of nearly 91,000 shares per day. The ETF charges 28 bps in fees per year from investors (read: High Quality Stocks, ETFs to Beat the Market).

The product holds 300 securities in its basket, with each holding less than 5% share. From a sector look, it provides double-digit allocation to consumer discretionary, information technology, industrials, consumer staples and health care. The fund has added 1.4% in the year-to-date timeframe and has a Zacks ETF Rank of 3 with a Medium risk outlook.

FlexShares Quality Dividend Index Fund ((QDF - ETF report))

The fund focuses on quality dividends stocks, which ensure a safe payout and more room for dividend growth by tracking the Northern Trust Quality Dividend Index. The product has 221 stocks in its basket with none holding more than 3.8% share each. Technology, financials, consumer discretionary, and health care are the top four elements in the basket making up for a double-digit allocation each.

The product has amassed $669 million in its asset base and trades in moderate volume of more than 76,000 shares a day. It charges 37 bps in annual fees and expenses and is up over 1% in the year-to-date timeframe.

First Trust NASDAQ Rising Dividend Achievers ETF ((RDVY - ETF report))

This fund has been newly introduced in the dividend space, providing exposure to the 50 U.S. stocks with a history of rising dividends and characteristics promising continued hike. This can be done by tracking the NASDAQ Rising Dividend Achievers Index. All the securities are well spread out with each accounting for less than 2.6% of total assets.

However, the product has a certain tilt toward financials with 30.8% share, closely followed by information technology (23.1%). The ETF has accumulated $23 million in its asset base since its debut in January this year and sees a paltry volume of 8,000 shares a day on average. Expense ratio came in at 0.50%. The fund has gained 2.5% so far.