Getting high dividend yields doesn’t mean that investors have to withstand stomach-churning volatility, especially with ETF options like the Invesco S&P 500 High Dividend Low Volatility ETF (SPHD ).
In fact, low-volatility equities translate to better returns over time. SPHD in particular focuses on large-cap and mid-cap value to not only extract maximum dividends, but also decrease volatility.
“The observation that low-volatility stocks outperform the high-volatility ones has received considerable attention in recent times, especially since the onset of the Covid-19 pandemic,” a Financial Express article said. “More specifically, low-volatility stocks, i.e., stocks which fluctuate less over time and have lower variance, are the ones that provide higher risk-adjusted returns to the investors in the long run.”
SPHD seeks to track the investment results (before fees and expenses) of the S&P 500® Low Volatility High Dividend Index. The fund will generally invest at least 90% of its total assets in the securities that comprise the underlying index.
The index provider compiles, maintains, and calculates the underlying index, which is composed of 50 securities in the S&P 500® Index that have historically provided high-dividend yields with lower volatility. To get a piece of SPHD, ETF investors are looking at a net expense ratio of 0.30%.
Currently, SPHD skews toward large- and mid-cap value. Equities that err on the side of the value factor tend to mute downturns better than small-cap growth names.
What's Next For Dividends?
Dividend yields have actually been down thus far in 2021, but things could look rosy ahead for 2022. Dividend hikes are expected as quarterly profits in the S&P 500 could reach highs as soon as the first quarter of next year.
“Shares of the eight S&P 500 stocks yielding more than 4.5% this year that announced dividend hikes are only up 12.3% in 2021, trailing the S&P 500’s gain,” an Investor’s Business Daily article said. “And shares of the 228 S&P 500 companies to announce dividend hikes this year are only up 20.8% on average this year, roughly in line with the S&P 500.”
“But (Adviser Investments portfolio manager Charles) Toole says more dividend hikes may be coming,” the article added. “Futures markets show investors expect S&P 500 quarterly profits to hit a new high in the first quarter of 2022.”
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