Could now be the time to add dividends? With market volatility continuing to loom on the horizon, now may be a good time to consider a dividend strategy. That said, not every dividend fund is created equal. ETFs offer some strong benefits as investment vehicles that can help investors get more out of dividend strategies. One ETF in particular offers a high-dividend approach that may merit a closer look.
See more: Why Active Management is Key for Options-Based ETFs
The Fidelity High Dividend ETF (FDVV ) charges a 16 basis point (bps) fee to track the Fidelity High Dividend Index. The dividend fund includes large- and midcap names that provide a steady stream of income via those dividends. As of July, the fund included megacap tech leaders like Microsoft Corp, but also companies like Philip Morris (PM) and Procter & Gamble Company (PG).
That approach has helped the fund return 14.9% over the last one year according to Fidelity Investments data. In addition, the dividend fund has also returned 17.8% over the last five years, beating the broader equity market in that time. Over the same period, the Russell 1000 Total Return index had returned 16.3% over five years as of the end of June.
The Benefits of an ETF Approach to Dividend Income
Thanks to its ETF approach, the fund may provoke fewer capital gains distributions to similar mutual funds. With ETFs’ easy tradability, too, the fund could provide a longer-term hold and an option to toggle in rising volatility.
Tax benefits and ETFs’ flexibility combined can help double down on dividends’ greatest strength: their ability to be reinvested. Investors can reinvest current income from an ETF’s dividends in either the same fund or others, aiming to help stabilize portfolios while also offering potential to grow investments.
Looking ahead, volatility could speak to a case for dividends. With tariff impacts still uncertain and the potential for persisting inflation through the rest of the year, dividends may help. Specifically for those at or near retirement, a dividend fund like FDVV could potentially provide a boost.
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Fidelity Investments® is an independent company unaffiliated with VettaFi LLC (“VettaFi”). These articles do not form any kind of legal partnership, agency affiliation, or similar relationship between VettaFi and Fidelity Investments, nor is such a relationship created or implied by the articles herein. VettaFi LLC is the author and owner of these articles.
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