Top 5 Dividend ETFs To Watch In August
As we head into the second half of summer, the market continues to disconnect from the underlying economic backdrop. Large-cap stocks continue to press ahead, but most defensive assets - gold, Treasuries, the dollar and utilities - are flashing warnings signs for the equity markets.
I've advocated for a shift to more defensive posturing for a few months now, but growth and tech equities continue to defy the odds by pushing higher.
The plunge in the dollar, however, could be a "straw that broke the camel's back" moment. Despite strength in gold and Treasuries, two traditionally defensive asset classes that signal investors taking risk off the table. But sturdiness in the dollar has prevented a steeper decline.
Now that the dollar has broken down, there might not be much left preventing riskier equities from giving up leadership.
In that case, a move to dividend equity ETFs, a group that has steadily underperformed for a year, could be ready to lead. And there are some attractive opportunities both here and abroad.
Here are 5 dividend ETFs to watch closely in August.
ProShares S&P 500 Dividend Aristocrats ETF (NOBL)
I've always had this fund as a top choice for anyone looking to add dividend exposure to their portfolios.
Dividend growth stocks have easily outperformed high yield and dividend quality. That's understandable given the list of dividend cuts and suspensions we've seen this year. Investors are migrating heavily towards reliable dividends above all else.
NOBL provides exposure to companies with a 25-year minimum history of paying and growing their dividends, making the ideal for many investors. Long-term dividend growers haven't necessarily been high yielders, but the current 2.4% dividend yield is at historically above average levels.
First Trust NASDAQ Technology Dividend Index ETF (TDIV)
This is an interesting choice for investors who want to straddle the line between equity exposure and dividends.
Tech has behaved somewhat defensively over the past two years, as investors tend to migrate back towards it times of uncertainty. We shouldn't discount the long-term strength in the tech sector, but shifting towards the more cash-heavy names as opposed to the high growth, high risk names could be a good balance.
The fund's 2.4% dividend yield won't necessarily blow anyone away, but it provides that yield via top holdings, such as Apple, Microsoft, Cisco, Intel and Qualcomm. In other words, these are big durable heavyweight names that offer a nice combination of both growth and income.
iShares Emerging Markets Dividend ETF (DVYE)
People don't usually think of emerging markets when considering dividends, but these regions, in my opinion, actually look more attractive than the U.S. right now.
DVYE is the emerging markets version of the popular $13 billion iShares Select Dividend ETF (DVY). DVYE is full of mid-cap and large-caps names heavy on the value side of the spectrum. The entire portfolio trades at a forward P/E ratio of just 7 (yes, 7) and pays a current dividend yield of 7.2%.
That's not to suggest that you should push all-in on a 7% yielder, but there's an easy case to be made why should consider adding some. Emerging markets have a higher forward growth forecast, come much cheaper than U.S. equities and the declining dollar adds a further tailwind.
WisdomTree U.S. Dividend ex-Financials ETF (DTN)
DTN is more of a broad U.S. dividend ETF, but tilts in order to avoid the sometimes volatile financials sector.
In the current economic environment, that's a good thing. Banks have been under heavy pressure due to record low interest rates and a crumbling global economy. Further, banks have been asked to suspend dividend increases to remain better capitalized during the COVID outbreak.
Dividend yields are already modest in the financials sector, the prospect of no dividend growth makes them less attractive and the economic backdrop makes the sector especially risky. It's better to avoid this sector right now if possible, and DTN does just that.
VanEck Vectors Morningstar Durable Dividend ETF (DURA)
In environments like these, it's always a good idea to focus on healthy balance sheets and strong cash flows. DURA targets high dividend yielding U.S. companies with strong financial health and attractive valuations according to Morningstar.
DURA comes with all that at a discount price.
It trades at a more modest 17 times forward earnings and has a current dividend yield of 4%. I'm not normally a fan of high yield strategies in these types of markets, but the high yield backed by strong financials makes this a more acceptable choice.
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