Stocks that pay a dividend typically provide protection in volatile markets because their cash payments cushion your losses. But in the 2022 bear market, that’s not enough. The type of dividend stock you own makes a big difference in returns. Example: Stocks of fast-growing companies that have been able to raise their dividends consistently for more than a decade are down 11% this year.* That beats the S&P 500’s –13.6% return, but stocks of blue-chip companies with long histories of dividend payouts are down just 1.9%. And cheap large-caps with high dividend yields have fared best of all, up 4.3% for the year. Reason for the differences: Looking for dividend growers led buyers to tech and consumer-discretionary stocks that have floundered this year.
What long-term dividend-stock investors should do: Look for exchange-traded funds (ETFs) that strike a balance between high-quality and high-yield stocks. Two worth considering now…
Fidelity High Dividend ETF (FDVV) has maintained relatively good performance in all types of markets. It owns about 100 undervalued companies with bulletproof balance sheets that pay decent yields and are unlikely to cut them in bear markets. Recent yield: 3.27%. Performance: –3%.
WisdomTree US High Dividend ETF (DHS) holds more than 300 stocks with an average forward price-to-earnings ratio (P/E) of just 11. Cheap prices and high dividends tend to be the priority here, so expect the fund to lag if there is a strong market rebound. Recent yield: 3.21%. Performance: 4.3%.