Dividend ETFs are highly attractive in the current environment, offering investors generous yields and resiliency amid inflation and periods of rising rates.
To combat decades-high inflation, the Federal Reserve last week ordered the largest interest hike in more than two decades, when the central bank raised its benchmark rate by a half-a-percentage point, following a quarter-point increase in March.
Looking at the nine-year record for all global equity income and global large-cap core ETFs and open-end funds, sorted by the nine-year Sharpe ratio, the SmartETFs Dividend Builder ETF (DIVS ), managed by Guinness Atkinson Asset Management, sits at the top of the pack.
DIVS invests globally in high-quality dividend growers with a long history of persistently high returns on capital. Looking under the hood of DIVS can unveil a lot about the quality of the fund’s holdings and its ability to stand up to rising 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.
15 companies have announced increases for their 2022 dividend from 2021 and two companies have announced a flat dividend compared to 2021, according to SmartETFs. This dividend growth elaborates on past momentum, having seen zero cancellations in 2021 and 2020.
So far, in the fund, the average dividend growth announced for 2022 stands at 7.9%, according to SmartETFs.
The financial holdings in DIVS have declared the largest year-on-year dividend increases. Aflac is to grow its dividend by 21.2% for 2022, following the 17.9% growth in 2021. Blackrock is to grow its dividend by 18.2% for 2022, following the 13.8% growth in 2021. CME Group is to grow its dividend by 11.1% for 2022, following the 5.9% growth in 2021. Deutsche Boerse is to grow its dividend by 6.7% for 2022, following the 3.4% growth in 2021. Arthur Gallagher is to grow its dividend by 6.3% for 2022, following the 6.7% growth in 2021, according to SmartETFs.
The two companies included in DIVS that announced a flat dividend for 2022 — Henkel and Danone — cited cautiousness as reasons for capital preservation amid both their respective restructuring efforts to achieve higher growth. Both companies continue to have strong balance sheets and low leverage, and the management team behind DIVS believes they can continue growing their dividend in the future.
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