The Allure of Dividend-Growth ETFs: A Safe Haven in Market Volatility
Dividend stocks have long been considered safe havens during market volatility, offering investors a steady stream of income. Among these, dividend-growth stocks stand out as particularly attractive, signaling not only consistent income but also the financial health of the underlying companies. Morningstar, a reputable financial analysis firm, has identified two top-rated dividend-growth ETFs, both earning its coveted gold rating. In this essay, we explore the appeal and advantages of these ETFs and highlight a hidden gem in the form of a company with a remarkable 50-year dividend increase streak.
I. The Allure of Dividend-Growth Stocks
Dividend-growth stocks represent companies that consistently raise their dividend payouts over time. This not only provides investors with an increasing income stream but also serves as an indicator of the financial strength and stability of these companies. In times of market uncertainty, such stocks are often sought after for their reliability and ability to weather economic fluctuations.
II. Morningstar’s Top Picks
T. Rowe Price Dividend Growth ETF (TDVG):
- Morningstar’s analyst Stephen Welch praises the fund’s manager, Tom Huber, for adeptly steering the strategy since March 2000.
- The ETF focuses on financially healthy companies capable of increasing their dividends over time.
- Emphasizes firms with high levels of free cash flow, providing resilience during market downturns.
- Maintains a dividend growth rate approximately 250 basis points higher than the S&P 500.
- Despite the focus on dividend growth, the fund targets an impressive overall portfolio dividend yield of 2% to 2.5%.
Vanguard Dividend Appreciation ETF (VIG):
- Analyst Bryan Amour highlights the fund’s strategy of pulling in stable, profitable firms with a consistent record of dividend increases for over a decade.
- Targets stocks with 10 years of dividend growth, ensuring a stringent hurdle for inclusion.
- Tracks the S&P US Dividend Growers Index, eliminating highest-yielding names for financial stability.
- Established constituents contribute to portfolio insulation from volatility, providing a long-term risk-adjusted advantage.
III. A Hidden Gem: RPM International
- Barron’s reveals a hidden gem in RPM International (RPM), a company with an impressive track record of increasing dividends for 50 consecutive years.
- RPM, a manufacturer of paints, coatings, and adhesives, has outperformed the S&P 500 significantly in terms of dividend reinvestment returns.
- CEO Frank Sullivan attributes the company’s success to its global sales presence, benefiting from economic growth in over 160 countries.
- RPM’s consistent dividend growth has made it a standout performer, showcasing the potential for long-term wealth creation through dividend investing.
Dividend-growth ETFs continue to be a beacon for investors seeking stability and income, particularly in volatile market conditions. Morningstar’s top-rated funds, T. Rowe Price Dividend Growth ETF and Vanguard Dividend Appreciation ETF, exemplify the principles of dividend investing. Additionally, hidden gems like RPM International underscore the enduring value of companies committed to consistent dividend growth, providing investors with a reliable pathway to long-term financial success.
