7 Top Market-Beating Dividend ETFs To Buy Now

Dividend investing is in vogue since the start of the year given the instability in the market and global growth concerns. The broad equity markets are currently near their record highs but uneven global economic growth, uncertain Fed policy, Brexit, U.S. election and geopolitical tensions are still weighing heavily on the market.

Meanwhile, bond yields have declined sharply boosting the demand for dividend-paying stocks. Though the Fed is on track with its gradual rate increase plan for later this year with inflation faring well and the job market strengthening, the hike will not come anytime soon.

So, investors have become defensive and shifted their focus to dividend products that provide stability and safety in a rocky market. 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. The dividend paying securities are the major sources of consistent income for investors when returns from equity market are at risk.

While there are plenty of options in the dividend ETF world, we have highlighted seven funds from the category that are clearly outpacing the broad market indices by wide margins and have a Zacks ETF Rank of 1 (Strong Buy) or 2 (Buy), suggesting their continued outperformance. In fact, these ETFs hit fresh highs in yesterday’s trading session and are solid options for investors seeking yields in a low rate environment as well as some returns in uncertain markets.

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

This is one of the popular and liquid ETFs in the dividend space with AUM of over $13.6 billion and average daily volume of more than 1 million shares. This fund provides exposure to 109 U.S. stocks that have been consistently increasing their dividends every year for at least 25 years. This can be done by tracking the S&P High Yield Dividend Aristocrats Index. Though the fund is slightly skewed toward the financial sector with 24.2%, industrials, utilities and consumer staples make up for a nice mix in the portfolio with a double-digit allocation each. The fund charges 35 bps in fees per year and yields 2.45% in annual dividend.

The ETF touched an all-time high of $83.48 per share in yesterday’s trading session, gaining about 14% so far this year. It has a Zacks ETF Rank of 2.

First Trust Value Line Dividend Index Fund (FVD - ETF report)

This ETF tracks the Value Line Dividend Index, giving investors exposure to about 184 companies that have a Value Line Safety Ranking of #1 or 2. Value Line selects those companies that have a higher-than-average dividend yield as compared with the indicated dividend yield of the Standard & Poor's 500 Composite Stock Price Index. This results in an equal-weight approach for individual securities albeit with some concentration risk from a sector look. Utilities takes the top spot with 24% of assets, followed by financials (18.2%), industrials (12.6%) and consumer staples (12.5%).

The fund is a bit pricier than many other products in the dividend space, charging investors 70 bps a year in fees. It has accumulated $1.9 billion in its asset base while sees good volume of more than 455,000 shares a day on average. The ETF has surged 12.7% in the year-to-date time frame and hit a fresh high of $26.81 per share. It yields 2.16% in annual dividend and has a Zacks ETF Rank of 2.

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Alex Gennaro 1 year ago Contributor's comment

You probably could throw OUSA in there as a dividend proxy stock.