5 Overlooked Dividend ETFs Worth Buying Now

With a rates hike on the cards and higher bond yields, the three-year incredible journey of dividend stocks and ETFs hit the brakes in the first half of 2015. In fact, dividend ETFs saw a rough stretch in the same period with outflows of over $2 billion (read: Are Dividend ETFs Losing Their Multi-Year Shine?).

This is especially true as the Fed is on track to raise interest rates sometime later this year, albeit at a slower pace, provided the job market continues to show improvement. Bond yields have risen for much of this year, taking away the sheen from these stocks. However, the return of volatility in the stock market and uncertainty across the globe has rekindled investors’ love for the products that provide stability and safety in a rocky market. Nothing seems a better strategy than picking dividend-focused products in this kind of an environment.

In particular, the Chinese stocks have been on a wild ride over the past few days, Europe is struggling with slower growth, the Japanese economy lost its momentum and many emerging economies is experiencing a slowdown despite rounds of monetary easing. Further, a strong dollar and lower oil prices have added to the global growth worries.

Dividend-focused products offer safety in the form of payouts while at the same time provide stability in the form of mature companies that are less volatile to the large swings in the stock prices. The dividend paying securities are the major sources of consistent income for investors to create wealth when returns from the equity market are at risk. This is because the companies that pay dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.

That being said, we highlight five dividend ETFs for investors seeking yields and returns in a rocky market. Though investors overlook these funds due to their lower AUM of under $500 million, they yield at least higher than the S&P 500, making them excellent choices in the current market turmoil.

iShares Core Dividend Growth ETF ((DGRO - ETF report))

This fund provides exposure to the companies having a history of consistently growing dividends by tracking the Morningstar US Dividend Growth Index. Holding 326 stocks in its basket, the fund has a well-diversified exposure across various sectors and securities. Industrials, consumer staples, consumer discretionary, health care and technology are the top five sectors with double-digit allocation each and none of the securities accounts for more than 3.02% of assets (read: 5 Dividend ETFs for Growth).  

The fund has AUM of $208.9 million and trades in volume of about 50,000 shares. Expense ratio came in at 0.12%. The ETF is modestly up 0.8% in the year-to-date timeframe and has a good dividend yield of 2.26%. It has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook.   

PowerShares Dividend Achievers Portfolio ((PFM - ETF report))

This fund has amassed $324.1 million in its asset base and trades in lower volume of around 37,000 shares a day on average. Expense ratio came in at 0.55%. The product provides exposure to the companies that have increased their annual dividend for 10 or more consecutive fiscal years by tracking the NASDAQ US Broad Dividend Achievers Index.

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