Editor
DIVIDEND ETFs NEW PEAKS
The appeal for dividend-focused ETFs is in vogue with bulls and bears playing tug-of-war lately. This is especially true as concerns over the fast-spread of the Delta variant of COVID-19 and the potential for a slower recovery took a toll on investors’ sentiment.
Per the latest data from U.S. Centers for Disease Control and Prevention, there were about 72,000 new cases per day of COVID-19 in the United States as of Saturday, up 44% over the previous week and higher than the peak set in the summer of 2020. Hospital admissions increased 41% and deaths jumped 25% to 300 per day. On the other hand, the spate of upbeat earnings and continued Q2 optimism are supporting risk-on trade. The picture emerging from the Q2 earnings season is one of all-round strength, with aggregate total quarterly earnings on track to reach a new all-time record and impressive momentum on the revenue side.
Additionally, the latest economic data have been mixed. The U.S. economy returned to the pre-pandemic level with GDP rising 6.5% annually in the second quarter, indicating a sustained recovery from the pandemic recession. Consumer confidence rose to a 17-month high in July, suggesting that consumer spending should support robust growth in the second half of this year (read: U.S. Economy Returns to Pre-Pandemic Level: 4 ETF Picks).
Meanwhile, growth in U.S. manufacturing activity slowed for a second straight month in July amid the ongoing supply-chain problems. With the start of the third quarter, all segments of the manufacturing economy are being impacted by near record-long raw-material lead times, continued shortages of critical basic materials, rising commodity prices and difficulties in transporting products, according to the chair of the ISM manufacturing survey committee.
In such a scenario, dividend investing remains a popular strategy. Though it does not offer dramatic price appreciation, the strategy is a major source of consistent income for investors in any type of market. The dividend-focused products offer safety through payouts, and stability in the form of mature companies that are less volatile amid large swings in stock prices. 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.
While there are plenty of options in the dividend ETF world, dividend aristocrats proved to be highly beneficial in the current market environment. These stocks have superior fundamentals that make dividend growth a quality and promising investment for the long term. These include a sustainable business model, a long track of profitability, rising cash flows, good liquidity, a strong balance sheet and some value characteristics. Further, a history of strong dividend growth indicates that dividend increase is likely in the future.
We have presented five ETFs that hit all-time highs in the last trading session and have the potential to move higher given the prevailing market uncertainty.
Vanguard Dividend Appreciation ETF VIG
This is the largest and most-popular ETF in the dividend space with AUM of $61.7 billion and an average daily volume of about 1.2 million shares. The fund follows the NASDAQ US Dividend Achievers Select Index, which is composed of high-quality stocks that have a record of raising dividend every year. It holds 247 securities in the basket and charges 6 bps in annual fees. The fund has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: Try Dividend Aristocrat ETFs to Fight Rising Delta Variant Woes).
iShares Core Dividend Growth ETF DGRO
This fund provides exposure to companies having a history of sustained dividend growth by tracking the Morningstar US Dividend Growth Index. It holds 389 stocks in its basket and has accumulated $19.9 billion in its asset base. It charges 8 bps in fees per year and has a Zacks ETF Rank #1 with a Medium risk outlook.
WisdomTree U.S. Quality Dividend Growth Fund DGRW
This fund tracks the WisdomTree U.S. Quality Dividend Growth Index and offers diversified exposure to U.S. dividend-paying stocks with both growth and quality characteristics like long-term earnings growth expectations, and three-year historical averages for return on equity and return on assets. It has gathered $6.3 billion in its asset base and charges 28 bps in fees per year from investors. The ETF holds 298 securities in its basket. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: 5 ETF Zones Hitting Highs As Growth Worries Resurface).
Invesco Dividend Achievers ETF PFM
With AUM of $661.4 million, this fund follows the NASDAQ US Broad Dividend Achievers Index and offers exposure to 350 stocks that have increased annual dividends for 10 or more consecutive fiscal years. It has an expense ratio of 0.53% and a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
VictoryShares Dividend Accelerator ETF VSDA
This ETF offers exposure to large-cap U.S. stocks with a minimum of five consecutive years of increasing dividends and a higher probability of future dividend growth. It follows the Nasdaq Victory Dividend Accelerator Index, holding 76 securities in its basket. VSDA has accumulated $345.9 million in its asset base and charges 35 bps in annual fees.
7 Best Stocks for the Next 30 Days.
WisdomTree U.S. Quality Dividend Growth ETF (DGRW): ETF Research Reports
Vanguard Dividend Appreciation ETF (VIG): ETF Research Reports
Invesco Dividend Achievers ETF (PFM): ETF Research Reports
iShares Core Dividend Growth ETF (DGRO): ETF Research Reports
VictoryShares Dividend Accelerator ETF (VSDA): ETF Research Reports
General Market
The Federal Reserve tapering debate intensifies, while the corporate earnings season continues. Companies look to address the climate change issue, while bitcoin and crude prices push higher. Here’s what you need to know in financial markets on Tuesday, 10th August.
1. Tapering debate intensifies
The market won’t be able to accuse the Federal Reserve of a lack of communication if the central bank does start reining in its extraordinary monetary stimulus later this year.
Atlanta Fed President Raphael Bostic on Monday joined a growing chorus of policymakers saying the central bank should move quickly, saying it could taper its asset purchases with another strong month or two of employment gains.
His colleague from Boston, Eric Rosengren, suggested September for a tapering announcement, matching previous comments from St. Louis Fed President James Bullard, who suggested the taper could be started in the fall and end by March.
Chicago Fed President Charles Evans continues the dialogue later Tuesday and Kansas City Fed President Esther George is set to speak on Wednesday.
Fed officials began debating when and how they should taper the $120 billion monthly asset purchases at their July meeting, pledging to keep this up “until substantial further progress” has been made toward its goals of maximum employment and 2% inflation.
2. Stocks seen flat; AMC) in focus
U.S. stocks are set to open largely unchanged, with investors still digesting the ongoing corporate earnings season.
Dow Jones futures were down 20 points, or 0.1%, while S&P 500 futures were effectively flat from Monday’s close. Nasdaq 100 futures edged up 19 points, or 0.1%.
AMC Entertainment (NYSE:AMC) is likely to be in the spotlight after the troubled movie theater chain reported a lower loss than expected after the close Monday, also announcing it would begin accepting bitcoin at all U.S. locations this year.
Coinbase Global (NASDAQ:COIN) is set to report quarterly earnings later Tuesday, with the crypto exchange’s stock receiving a boost from the recent sharp gains in bitcoin.
Likely to weigh on sentiment was the weak trading debut of Tencent Holdings-backed South Korean company Krafton, closing down 8.8% from the IPO price, with analysts citing an expensive valuation and China regulation risks.
3. Companies need to address climate change – StanChart CEO
Climate change is becoming a pressing issue in the corporate sector, with a report from a UN-backed panel warning Monday that global warming is dangerously close to spiralling out of control.
Companies should not rely on governments to reach agreement at a global summit on climate change in Scotland in November, but rather take more action themselves, Standard Chartered (OTC:SCBFF) CEO Bill Winters said on Tuesday, at an online industry event.
StanChart has said it aims to reach net zero carbon emissions from its operations by 2030 and have the companies it finances reach net zero carbon emissions by 2050.
4. Bitcoin receives U.S. regulatory boost
Bitcoin is climbing again, with the largest cryptocurrency by market capitalization boosted by the news that U.S. lawmakers have reached a compromise on cryptocurrency tax provisions.
Bitcoin traded at $45,879, up 2.3% on the day, having topped $46,000 earlier, a new three-month high.
Concerns had been growing that the original loose definition of “broker” in the highly awaited infrastructure bill would mean certain crypto companies would suffer from cumbersome regulatory reporting restrictions, potentially stifling innovation in the crypto space.
However, a couple of senators revealed an amendment on Monday, which seeks to exempt non-broker type entities from the legislation.
5. Crude bounces, but sentiment still weak
Oil prices bounced Tuesday after falling to three-week lows during the previous session amid worries the growing number of Covid-19 cases, primarily in China, will curb crude demand.
U.S. crude futures were up 1.4% at $67.38 a barrel, after falling 2.6% on Monday, while Brent futures gained 1.1% at $69.78 a barrel, having dropped 2.3% during the previous session.
The fast-spreading delta variant of the virus has arrived in China, the second largest consumer of oil in the world, resulting in renewed mobility restrictions, with domestic air travel hit hard.
This has raised concerns about the short-term demand outlook and interrupted a strong rally which saw prices advance more than 50% over the first half of the year.
Attention will now turn to the release of U.S. crude oil supply data from the American Petroleum Institute later in the session, as a gauge over whether rising Covid U.S. cases have also had an impact.
