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Even if you’ve amassed a substantial amount of retirement savings over the years, unpredictable events such as market downturns can take a serious crack at your nest egg.
And if you’re not careful, this means your earnings could easily be eroded and the chance of you outliving your savings increases.
But to hedge against potential market downturns while maintaining a steady stream of income in retirement, many investors turn to dividend ETFs. But not all dividend ETFs are created equal.
To find dividend ETFs that may weather the market storms you’re going to want to put a magnifying glass to these securities. You may want to look into dividend ETFs that screen for companies with strong financials and performance, as well as low volatility. You’d also want to look for ETFs that have histories of consistently paying and increasing dividends over time. Additionally, you may also want to pay close attention to how well diversified these ETFs are across segments of the market like the defensive sector. Companies in this cohort have generally shown to remain resilient even during times of market stress.
But to help you cut through the noise, we devised a list of 5 dividend ETFs that you can hold even during market downturns.
So let’s take a closer look.
Vanguard Dividend Appreciation ETF (VIG)
The Vanguard Dividend Appreciation ETF
(VIG) aims to invest in companies with histories of growing their dividends year over year. These tend to be characteristics of companies with strong performances and financials. This could give investors growth potential, consistently rising dividends over time, and overall peace of mind.
The fund’s holdings are mainly in information technology, financials and healthcare. The latter is part of the defensive sector. And the information technology sector has been benefiting from the recent boom in artificial intelligence (AI). In fact, about half of all IT departments within large organizations are currently blending AI into their work portfolios, according to a recent report by the University of Cinicianti.
So it’s no surprise that some of VIG’s biggest holdings include members of the so-called Magnificent Seven.
These firms have helped VIG deliver an impressive five-year return of over 58%. And it maintains a yield of around 1.60%. VIG also stands out for its ultra low expense ratio of 0.05%.
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
As its name implies, the Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) tracks an index composed of 50 companies known for historically combining high dividends with low volatility. These traits could be essential in a turbulent market. SPHD generates a yield of about 4%.
Moreover, SPHD aims to dodge value traps by excluding companies with high yields and high volatility, as these could be characteristics of distressed companies.
SPHD’s main holdings are in real estate, consumer staples and utilities. The latter two are part of defensive sectors. And the real estate sector has been known to have the potential to hedge against inflation. Moreover, SPHD has delivered a five-year return of over 27%. And it has a competitive expense ratio of 0.30%.
Schwab U.S. Dividend Equity ETF (SCHD)
The Schwab U.S. Dividend Equity ETF (SCHD) has become quite popular among dividend ETF investors. And it has several highlights to show. The fund focuses on high-quality, large-cap companies with strong financials and sustainability of dividends.
It offers a yield of nearly 4%. Its high yield and diverse portfolio of fundamentally strong companies could help investors weather the storms of market downturns. And it has a five-year return of over 32%.
SCHD’s main holdings are in energy and defensive sectors like consumer staples and healthcare. Moreover, it has a low expense ratio of 0.06%.
State Street SPDR S&P Dividend ETF (SDY)
The State Street SPDR S&P Dividend ETF (SDY) may offer protection during market dips by focusing on companies with high-yield stocks that have consistently raised their dividends for at least 20 consecutive years. This could give investors steady and stable income as well as the potential for capital appreciation under various market conditions. Its main holdings are in sectors like industrials, consumer staples and utilities.
The fund offers a yield of around 2.61% coupled with a five-year return of over 35%.
Vanguard Consumer Staples (VDC)
As we mentioned, companies in defensive sectors tend to remain strong even during times of economic turmoil. That’s because these companies offer products like food and household items that people would need and purchase regardless of the state of the economy. And utilities companies provide essential services like electricity and gas, which generally helps them remain stable in various market cycles. Some funds focus solely on the defensive sector. So you may want to consider allocating a portion of your portfolio to such funds.
Among them is Vanguard Consumer Staples Index Fund ETF (VDC). Its main holdings are in industries like merchandise retail, soft drinks & non-alcoholic beverages, and household products. The fund pays a yield of over 2% and has a five-year return of over 32%.
And if you want to diversify your portfolio across the defensive sector, here are some other funds you may want to look into.
- State Street Utilities Select Sector SPDR ETF (XLU)
- iShares U.S. Healthcare ETF (IYH)
- State Street Consumer Staples Select Sector SPDR ETF (XLP)