Easing Investor Anxiety with these 3 Dividend ETFs
3 Ways to Avoid "Investment Vertigo"
There is a very important lesson to be learned about investing from the trials and tribulations about our everyday decisions.
If you allow all of these dizzying thoughts to completely consume your thinking, you'll never even get to the point where you can make any decisions at all, much less live a fulfilling life.
That is the definition of analysis paralysis.
Here’s how the experts explain it...
“Analysis paralysis is an anti-pattern, the state of over-analyzing (or over-thinking) a situation so that a decision or action is never taken, in effect paralyzing the outcome. A decision can be treated as over-complicated, with too many detailed options, so that a choice is never made, rather than try something and change if a major problem arises.”
There are so many options out there: thousands of stocks, boatloads of mutual funds, CDs, treasuries, IRAs, precious metals...
Now we're subjected to mind-boggling investments like cryptos, SPACs, and NFTs.
I don't blame anyone for being confused or overwhelmed. I get it.
The average investor’s portfolio consists of up to 3 dozen stocks. Attaining and maintaining a diverse portfolio could definitely land you in a world of stress.
It’s very easy to get caught up in the fast pace of the investing world. Those new to it find trouble on deciding where to start and veterans are debating on if their techniques still hold up today.
One of the biggest caveats in investing is "past results do not guarantee future performance." I would like to respectfully disagree...
My favorite investment banks are on the opposite of this axiom. I believe that past results are pretty much the most rock-solid way to determine investments for the future.
You see, I have a love of “dividend aristocrats” — stocks that have raised their dividend consistently for at least 25 years running. I dedicate a lot of my portfolio to these stocks — and for good reason.
They are ironclad investments in times of uncertainty in the market. Dividend-paying stocks are the major sources of income for investors when returns from the equity market are either low or negative.
Dividend-focused stocks are safe not only because you still get dividend checks whether the market goes up or down, but also the sheer stability of dividend aristocrat companies makes them far more immune to the large swings in stock prices.
That’s the whole name of the game, right? High returns with lower risks.
Even in 2020, one of the most uncertain years to date, saw an increase in daily volume of investors. A 55% increase compared to the year before.
Numbers went on to rise even more; from December 2020 to January 2021, average daily trades increased 23% alone.
So even with heavy setbacks, there still tends to be a healthy amount of investor confidence.
Put yourself in a scenario where you’ve taken a hiatus of sorts from your investing endeavors. Say you’ve woken up and you’ve regained your drive but want to ease back into the swing of your previous practices.
That's why I recommend exchange-traded funds (ETFs) to anyone who wants to grow their money as easily and efficiently as possible.
For those who just want an ETF to track growing dividend aristocrats, here are three solid choices to make your life a lot easier...
ProShares S&P 500 Aristocrats ETF (BATS: NOBL)
This ETF provides exposure to 50 companies that raised dividend payments annually for at least 25 years by tracking the S&P 500 Dividend Aristocrats. The index contains a minimum of 40 stocks, which are pretty equally weighted.
Consumer staples is the top sector, accounting for one-fourth of the portfolio while industrials, health care, consumer discretionary, and financials round off the next three spots. The fund has $7.3 billion in assets and an expense ratio of 0.35%.
At any given time, NOBL stated that it holds a minimum of 40 stocks. It maintains a high volume of holds but also regulates each stock. Not one can account for more than 30% of the index weight, diversifying it and preventing any monopolization within.
It's returned 67% in the last five years, not including dividends. It has an annual dividend yield of around 2%. Its top ten holdings include dividend stalwarts like Otis Worldwide Group (NYSE: OTIS), Abbott Labs (NYSE: ABT), and Walgreens Boots Alliance (NASDAQ: WBA).
ProShares Russell 2000 Dividend Growers ETF (BATS: SMDV)
This is a more recent fund — it debuted in February 2015 — and it is currently managing around $820 million in net assets. It follows the Russell 2000 Dividend Growth Index and offers exposure to 56 Russell 2000 companies that have increased dividends every year for at least 10 consecutive years. Not quite aristocrat material, but these companies may get there if they keep up their current rate.
Similar to NOBL, the index contains a minimum of 40 stocks, which are also about equally weighted.
Financial services lead the fund’s portfolio with 25% of holdings, followed by 20% exposure each in utilities and industrials. There is a 0.41% expense ratio.
The fund gained 64% since its debut and yields around 2% in annual dividends.
Its top holdings are pretty equally rated (and a little more fun). They include PetMed Express (NASDAQ: PETS), Tootsie Roll Industries (NYSE: TR), and WD-40 Co. (NASDAQ: WDFC).
SPDR S&P Dividend ETF (NYSE: SDY)
This is one of the most popular dividend ETFs out there, and it has more holdings than any other I mentioned above — by far. It holds net assets of $17.14 billion.
SDY provides exposure to U.S. stocks that have been consistently increasing their dividends every year for at least 25 years. They do this by tracking the S&P High Yield Dividend Aristocrats Index.
Sector wise, financial stocks lead with 18.72%. Industrials, utilities, and consumer defensives make up a nice balance for the portfolio with double-digit allocations each. They count heavyweights like Exxon Mobil (NYSE: XOM), AT&T (NYSE:T), and People's United Financial (NASDAQ: PBCT) among them.
It currently yields 2.73% in annual dividends with 112 holdings. It’s 12-month yield sits at 2.68%.
SDY has outperformed all of the rest with an impressive 100% return over the past five years.
Any of these ETFs are solid investments for the future…
So there you have it: three easy ways to build an immediate dividend portfolio. Now it's up to you whether you'd like to get your investments started. As they say, the best time to invest was yesterday; the second best is today.
Jimmy is a managing editor for Outsider Club and the investment director of several personal finance advisories, The Crow's Nest, and The Adventure Capitalist For more on Jimmy, check out his editor's page.
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