The renaissance for dividend stocks continued in July as investors returned with a sense of optimism. After selling throughout much of 2022, investors began feeling as if inflation might be peaking, the Fed might be nearing the end of its rate hiking cycle and corporate earnings haven't been as bad as feared. Yes, it looks like recession is upon us, but folks appeared to spend much of the month searching for more positive narratives.
Dividend stocks didn't keep up with the broader averages this month. Previous leaders, including high yielders, lagged the S&P 500 by around 4%, but the dividend growth and dividend quality also underperformed by 1-2%. That doesn't mean that there weren't winners to be had. Multiple ETFs gained more than 10% and many of the month's biggest winners came from smaller and relatively less-known issuers.
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One trend that we did see play out in July was the return of riskier dividend strategies. ETFs that focused on mid-cap and small-cap dividend payers tended to perform a little better, while sector plays, including those focusing on the financials and real estate sector performed particularly well. The broader market saw previously beaten down groups, including growth and tech, do quite well in July and those dividend payer strategies that took a little more risk similarly followed suit.
After outperforming the market for much of the 1st half of 2022, dividend stocks have only really matched the market over the past two months. With recession setting in and the global economy continuing to slow, I'd expect dividend stocks to return to their outperforming ways in the 2nd half of the year. That may not necessarily translate into positive performance, but the relative safety of companies backed by strong balance sheets and healthy cash flows should look particularly attractive.
Here's the list of the best performing dividend ETFs for July 2022.
The funds that hit the 10% return mark this month - the ProShares S&P Technology Dividend Aristocrats ETF (TDV), the First Trust SMID Cap Rising Dividend Achievers ETF (SDVY), the First Trust Small Cap U.S. Equity Select ETF (RNSC) ,the Invesco KBW High Dividend Yield Financial ETF (KBWD), the Siren DIVCON Leaders Dividend ETF (LEAD), the Hoya Capital High Dividend Yield ETF (RIET) and the Dimensional U.S. Small Cap Value ETF (DFSV).
TDV, not surprisingly, is beating the tech sector by about 7% year-to-date and the S&P 500 by more than 2%. Its focus on tech and dividend growers combined two themes that did well in July. KBWD is highly volatile due to its heavy allocations to mortgage REITs and custody firms, but tends to be a leader when REITs and financials do well (its 10% yield also helps). RNSC is an equal-weight portfolio of small-cap dividend payers.
REIT ETFs did surprisingly well given the questionable backdrop that includes a crumbling Chinese real estate sector and a declining U.S. housing market. The Hoya Capital High Dividend Yield ETF (RIET) was the best performer, a newer ETF that incorporates high yield, dividend growth and quality components to security selection. It's followed by two REIT ETFs that are focused on the highest of high yielders - The Global X SuperDividend REIT ETF (SRET) and the Invesco KBW Premium Yield Equity REIT ETF (KBWY). Both yield around 7% currently.
Looking at another new ETF, the AAM Bahl & Gaynor Small/Mid Cap Income Growth ETF (SMIG) lands in the top 15. It's an actively managed fund that focuses on companies with competitive advantages, under-appreciated capabilities and strong dividend & cash flow growth. It's already over $100 million in assets, so it's been getting some attention.
WisdomTree lands 6 ETFs in July's top 30 list. Several of its broader dividend and dividend growth ETFs appear, but it's the WisdomTree International Quality Dividend Growth ETF (IQDG) that I want to spend a minute on. It's the foreign counterpart of the popular WisdomTree U.S. Quality Dividend Growth ETF (DGRW) and could be a nice option if you're looking to diversify your income streams. Its quarterly distribution is a little choppy, but it's good a yield of more than 3% and comes with only modest volatility.
Other ETFs Worth Noting:
None of the largest and most well-known dividend ETFs make this month's cut. The SPDR Russell 1000 Yield Focus ETF (ONEY) is the only ETF that lands in the top 10 of my dividend ETF rankings that shows up on this month's list, where it currently sits at #7. The next highest ranking ETF would be the FlexShares Quality Dividend Index ETF (QDF) at #18.
The funds at the top of this list have sister ETFs using similar strategies but targeting different markets. KBWD, for example, has KBWY, which I mentioned earlier. RNSC focuses on small-caps, but there is also the First Trust Mid Cap U.S. Equity Select ETF (RNMC) and the First Trust Large Cap U.S. Equity Select ETF (RNLC). All three funds did very well in July, demonstrating that the funds' core targeting strategies worked quite well.
Highlighting a couple more under-the-radar dividend ETFs, the Siren DIVCON Leaders Dividend ETF (LEAD) and the VictoryShares Dividend Accelerator ETF (VSDA) are two funds that have appeared on these lists before in 2022. Both focus on dividend growth and quality. VSDA has had a particularly strong year.