Recent market turmoil has left many investors feeling uncertain about their portfolio’s current positioning. A dividend ETF may be a solution for investors looking for more stability during periods of market volatility and uncertainty.
The current market environment is complicated by various factors, including sticky inflation, a unique interest rate environment, and an increase in geopolitical uncertainty and deglobalization. This means that many investors expect volatility to be a key theme in markets through 2025 and beyond.
Notably, investors have had a healthy appetite for income-generating investments in recent years, as investment income can help offset market volatility. A dividend ETF can offer dividend income as well as potential distribution growth to protect purchasing power.
One dividend ETF worth consideration is the Fidelity High Dividend ETF (FDVV ). FDVV invests in securities included in the Fidelity High Dividend Index. The index comprises large- and midcap dividend-paying companies expected to continue to pay and grow their dividends.
The top holdings in Fidelity’s U.S.-focused high dividend ETF, as of March 31, include Apple, Microsoft, NVIDIA, JPMorgan Chase, and Visa. The fund’s top sector by weight is information technology, making up 21.23% of the fund as of March 31.
It’s important to look under the hood when considering dividend ETFs. Investors need to be especially wary of holding melting ice cubes, which are companies that are increasing dividends but only due to declining value.
A Dividend ETF May Offer Diversification Benefits
Dividend ETFs can potentially serve as a diversified income source in portfolios. This is an advantage for many investors, particularly those currently generating income solely from their fixed income investments.
Demand for dividend-paying stocks has historically tended to rise as interest rates decline, as many investors look for alternative ways to generate income. Dividend ETFs offer the potential to provide a regular revenue stream in any interest rate environment; however, it’s important to remember that there is no guarantee of future dividends.
For more news, information, and analysis, visit the ETF Investing Channel.
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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