Why dividend stocks may be more like bonds in a volatile market

Investors are increasingly turning to dividend stocks for stability and income, especially in times of market volatility. With both stock and bond markets experiencing sharp fluctuations, dividend stocks are appealing to a wider range of investors, offering a balance between growth and yield.

There are now over 100 exchange-traded funds focused on dividend stocks, with the largest assets concentrated in index funds like Vanguard Dividend Appreciation ETF (VIG), Schwab US Dividend Equity ETF (SCHD), and iShares Core Dividend Growth ETF (DGRO).

Top 5 dividend ETFs by total assets under management:

1. Vanguard Dividend Appreciation ETF: $81 billion
2. Schwab U.S. Dividend Equity ETF: $65 billion
3. Vanguard High Dividend Yield Index ETF: $54 billion
4. iShares Core Dividend Growth ETF: $28 billion
5. SPDR S&P Dividend ETF: $19 billion

As actively managed ETFs gain popularity, actively managed dividend ETFs like T. Rowe Dividend Growth ETF (TDVG) are attracting investors looking for higher-quality dividend payers with a mix of capital appreciation and yield.

TDVG’s top holdings include tech giants Apple and Microsoft, making it a compelling option for investors seeking exposure to tech dividend payers while diversifying away from tech-heavy portfolios.

Active managed dividend ETFs, like TDVG, offer a more dynamic approach compared to passive funds, aiming to deliver both dividend income and long-term capital appreciation.

Top dividend ETFs by current yield:

1. Invesco KBW High Dividend Yield Financial ETF: 14%
2. Hoya Capital High Dividend Yield ETF: 11%
3. Invesco KBW Premium Yield Equity REIT ETF: 10%
4. Infrastructure Capital Equity Income ETF: 9.7%
5. KraneShares Value Line Dynamic Dividend Equity Index ETF: 9.2%

While high-yield dividend ETFs may offer attractive yields, investors should be cautious not to base their decisions solely on yield, as high dividend payers may be vulnerable to cuts if financial conditions deteriorate.

Active management in dividend ETFs can help navigate market volatility and identify resilient dividend payers, offering a balance between income and growth potential.

Overall, dividend stocks continue to be an appealing investment option, especially in a market environment where bonds are facing challenges, and investors are seeking stability and income.