Since the beginning of the year, investors have been rotating away from growth ETFs and stocks, namely big tech, in favor of high dividend-yielding investments, moving into sectors including financials and energy.
Financial stocks enjoyed broad gains on Monday, with the sector leading all S&P 500 sectors, up 3.8% as of mid-day. The gains follow JPMorgan Chase & Co. having raised its outlook for net interest income, propelling the stock to be on track for its biggest gain since November 2020. Other financial stocks seeing increases today include Citigroup Inc., Bank of America Corporation, Wells Fargo & Company, among others.
The SmartETFs Dividend Builder ETF (DIVS), managed by Guinness Atkinson Asset Management, is a great fit for investors looking for meaningful exposure to financials, with the sector holdings amounting to 14.25% of the fund, according to VettaFi. Dividend ETFs are highly attractive in the current environment, offering investors generous yields and resiliency amid inflation and periods of rising rates.
Certain sectors within the stock market benefit from higher rates and are more sensitive to changes in interest rates compared to others. Financials are a well-known hedge, as the sector benefits from higher interest rates through increased profit margins.
The financial sector has historically been among the most sensitive to changes in interest rates. The sector’s profit margins actually expand as rates climb, and thus banks, insurance companies, and money managers, among others, have historically been some of the greatest beneficiaries from higher interest rates.
So far in 2022, DIVS has had dividend updates from 17 of its 35 holdings, and despite the challenging current economic climate, zero companies have announced dividend cuts or cancellations, according to SmartETFs.
Fifteen companies have announced increases for their 2022 dividends from 2021, and two companies have announced flat dividends compared to 2021, according to SmartETFs. This dividend growth elaborates on past momentum, having seen zero cancellations in 2021 and 2020.
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