Quality Dividend ETFs for Turbulent Times – September 29, 2017

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U.S. equity markets are going through turbulent times. There is a lot of volatility and uncertainty owing to rising geopolitical risks and political uncertainty. This has increased the appeal of dividend investing.

Geopolitical Risks

Geopolitical risks have been on the rise. North Korea conducted its seventh nuclear test, an Inter Continental Ballistic Missile that flew over Japan, on Sep 14, 2017. Kim Jong-Un’s actions have created huge unrest in a number of Asian economies and the United States.

In response to continuous missile tests, President Donald Trump in his maiden UN General Assembly speech threatened to completely destroy North Korea. This prompted North Korean leader Kim Jong-Un to warn the United States of the “highest level of hard-line countermeasure in history”.

Moreover, North Korea’s foreign minister stated that Trump’s comments indicate that the United States has declared war against North Korea. “Since the U.S. declared war on our country, we will have every right to make countermeasures, including the right to shoot down the U.S. bombers even when they are not yet inside the airspace border of our country,” foreign minister Ri Yong Ho said. However, the White House has rejected the accusations.

This latest development made investors flock to safe haven investments and led to a decline in tech stocks (read: Safe Haven Currency ETFs Gain Amid Latest North Korea Threats).

Trump’s Actions

There is increased uncertainty with regard to Trump’s ability to pass the promised legislations relating to tax reform and deregulation. Although economic fundamentals have been strong, there are renewed doubts over the capabilities of the Trump administration.

Trump introduced a new travel ban with restrictions on citizens from eight nations, six of which are Muslim majority. Starting Oct 18, citizens of Chad, Iran, Libya, Syria, Venezuela, Yemen, Somalia, and North Korea will be banned from traveling to the United States. However, people holding permanent residency or visas are exempted from the ban, but cannot renew their visas once they expire.

Moreover, the Trump administration is being highly criticized. In a separate development, six advisers to Trump have been found to be using personal email addresses for official government purposes. This is ironical given Trump’s stance on the investigation into Hillary Clinton’s use of a personal server prior to the 2016 Presidential elections (read: Trump Widens North Korea Sanctions: ETFs in Focus).

In such a scenario, dividend-paying securities provide consistent income to investors. The uniqueness of these securities is their increase when political uncertainty weighs on markets, more so because apart from high dividend, these securities exhibit less volatility as they are stable and mature companies.

Let us now discuss a few ETFs focused on providing exposure to U.S. equities with relatively high dividend yields.

FlexShares Quality Dividend Index Fund (QDF Free Report)

This fund seeks to provide exposure to U.S. companies providing high dividends while maintaining a quality factor and utilizing constraints to minimize risk.

It has AUM of $1.8 billion and charges a fee of 37 basis points a year. From a sector look, the fund has high exposures to Information Technology, Financials and Industrials with 18.9%, 14.3% and 12.7% allocation, respectively (as of Jun 30, 2017). The fund’s top three holdings are Merck & Co. Inc (MRK Free Report) , Wells Fargo & Co (WFC Free Report) and Boeing Co (BA Free Report) with 3.5%, 3.4% and 3.3% allocation, respectively (as of Sep 22, 2017). The fund has returned 12.5% in a year and 5.6% year to date (as of Sep 25, 2017).

WisdomTree U.S. Quality Dividend Growth Fund (DGRW Free Report)

This fund seeks to provide exposure to large, established U.S. companies providing high dividends by applying quality screens.

It has AUM of $1.63 billion and charges a fee of 28 basis points a year. From a sector look, the fund has high exposures to Information Technology, Health Care and Industrials with 20.8%, 20.7% and 20.1% allocation, respectively (as of Sep 25, 2017). The fund’s top three holdings are Johnson & Johnson (JNJ Free Report) , Apple Inc (AAPL Free Report) and Microsoft Corporation (MSFT Free Report) with 6.0%, 4.1% and 3.7% allocation, respectively (as of Sep 25, 2017). The fund has returned 18.9% in a year and 13.5% year to date (as of Sep 25, 2017). It has a dividend yield of 1.6%. It currently has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

Schwab U.S. Dividend Equity ETF (SCHD Free Report)

This fund seeks to provide cheap exposure to U.S. companies providing high dividends.

It has AUM of $5.94 billion and charges a fee of 7 basis points a year. From a sector look, the fund has high exposures to Consumer Staples, Information Technology and Industrials with 24.7%, 21.1% and 14.5% allocation, respectively (as of Jun 30, 2017). The fund’s top three holdings are Verizon Communications Inc (VZ Free Report) , Pfizer Inc (PFE Free Report) and Intel Corp (INTC Free Report) with 4.7%, 4.6% and 4.6% allocation, respectively (as of Sep 25, 2017). The fund has returned 12.2% in a year and 6.6% year to date (as of Sep 25, 2017). It currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

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