3 Dividend-Paying ETFs to Double Down On Even if the S&P 500 Sells Off in October

Investing in dividend-paying stocks and ETFs is presented as a robust strategy for navigating market volatility, offering both consistent income and capital appreciation. Historically, dividend growers and initiators have demonstrated superior total returns compared to non-payers, providing a potential hedge against inflation. The piece highlights specific dividend-focused ETFs, such as iShares Preferred and Income Securities ETF (PFF), Schwab U.S. Dividend Equity ETF (SCHD), and Vanguard Dividend Appreciation ETF (VIG), outlining their distinct investment mandates, yields, and performance, while noting a general inverse relationship between yield and growth potential.

Analysis

The article advocates for dividend-paying stocks and ETFs as a resilient investment strategy, particularly amidst potential market volatility. Historical data from 1973-2024 indicates that dividend growers and initiators achieved an average annual total return of 10.24%, significantly outperforming the equal-weighted S&P 500's 7.65% and dividend non-payers' 4.31%. This suggests a robust long-term performance advantage for companies committed to returning capital.

Investing in dividend-focused ETFs offers consistent income, potential for capital appreciation, and a hedge against inflation. The analysis highlights a general trade-off between current yield and long-term growth, as evidenced by the performance of various ETFs. For instance, iShares Preferred and Income Securities ETF (PFF) offers a 6.46% yield but lower 10-year returns (3.64%) compared to Vanguard Dividend Appreciation ETF (VIG) with a 1.64% yield and higher 10-year returns (13.16%).

Specific ETF recommendations include Schwab U.S. Dividend Equity ETF (SCHD), which targets high-quality companies with at least 10 years of dividend payments, and VIG, which focuses on companies with a decade of consecutive dividend increases. PFF differentiates itself by investing in preferred stocks, offering higher fixed payouts but limited capital appreciation. These distinct strategies cater to varying investor preferences for income versus growth.

Key Decisions for Investors

• Consider allocating to dividend-focused ETFs for portfolio stability and income generation, especially during periods of anticipated market volatility.
• Evaluate specific dividend ETFs based on their underlying strategy, such as preferred stock focus (PFF), consistent dividend history (SCHD), or dividend growth (VIG), to align with individual investment objectives.
• Recognize the trade-off between higher current yield and long-term capital appreciation, potentially diversifying across different dividend-focused strategies for balanced exposure.