Dividend investing gained enormous traction amid the pandemic as average investors tried to secure a steady income. Companies are slowly reinstating their dividend programs and even increasing them after suspending pay-outs earlier this year. With the Fed repurchasing US treasury bills and mortgage backed securities due to the near-zero interest rate, fixed-income investors have been relying on dividend stocks.
The market is bracing for heightened volatility due to the upcoming presidential election, along with the new stimulus package, and another possible wave of coronavirus infection. Consequently, investing in individual stocks in the near term could be very risky. Hence, dividend paying ETFs could be the safest options due to their diversified exposure at minimal cost.
Investing in dividend-paying ETFs with promising prospects like the iShares Russell 2000 ETF (IWM), SPDR S&P Dividend ETF (SDY) and iShares Nasdaq Biotechnology Index Fund (IBB), could be highly profitable as the recent dip has created an excellent opportunity for dividend investing at discounted prices.
iShares Russell 2000 ETF (IWM)
IWM seeks to track the investment results of an index composed of small-cap US equities. It invests in stocks of companies operating across diversified sectors. This ETF is among the best choices in the crowded small-cap field. The fund tracks the popular Russell 2000 index.
The ETF has an impressive record of paying quarterly dividends. The most recent dividend declared by IWM was $0.57 in September, raising its pay-out 21.5% year-over-year. The ETF pays an annual dividend of $2.05, which translates into a dividend yield of 1.34%.
IWM has $42.3 billion in AUM and an expense ratio of 0.19%. The ETF has an MSCI ESG Fund Rating of BB based on a score of 3.54 out of 10.
The fund currently holds 2,019 companies with the maximum exposure of 21.4% to the Healthcare industry followed by a 15.2% and 14.7% exposure to the Industrials and Financials sectors, respectively. The top 3 holdings of the fund are Penn National Gaming Inc (PENN), Sunrun Inc (RUN) and Caesars Entertainment Inc (CZR), with the weightings of 0.51%, 0.46% and 0.4%, respectively.
IWM closed yesterday’s trading session at $153.31, gaining more than 23% in the past six months. The ETF has witnessed net inflow of $725.2 million in the same period. The ETF is presently trading 10.1% below its all-time high of $170.56.
How does IWM stack up for the POWR Ratings?
A for Trade Grade
B for Buy & Hold Grade
A for Peer Grade
B for Industry Rank
A for Overall POWR Rating.
It is ranked #1 out of 52 ETFs in the Small Cap Blend ETFs group.
SPDR S&P Dividend ETF (SDY)
The investment objective of SDY is to provide investment results that correspond to the performance of the S&P High Yield Dividend Aristocrats Index. The index is designed to measure the performance of the highest dividend yielding S&P Composite 1500 Index constituents that have followed a managed-dividends policy of consistently increasing dividends every year for at least 20 consecutive years.
SDY paid a dividend of $0.69 in the second quarter, increasing its pay-out by 0.9% compared to the previous year. While the four-year average dividend yield for the ETF is 3.55%, the current annual dividend of $2.83 translates into a 3.08% yield.
SDY has $14.6 billion in AUM and an expense ratio of 0.35%. The ETF has an MSCI ESG Fund Rating of A based on a score of 6.10 out of 10.
The ETF has an 18.9% weighting to the Industrial sector, followed by an exposure of 17.3% and 13.9% to the financial and consumer staples sector, respectively. The top 3 out of 118 holdings in the fund are AT&T Inc (T), Exxon Mobil Corp (XOM), and National Retail Properties Inc (NNN), with weightings of 2.1%, 2%, and 1.9%, respectively.
SDY has lost 1.2% over the past three months and closed yesterday’s trading session at $91.76. The ETF is presently trading 15.7% below its 52-week high of $108.81.
SDY is rated “Buy” in our POWR Ratings system. It holds an “A” in Trade Grade, and a “B” in Buy & Hold Grade, Peer Grade, and Industry Rank. It is ranked #19 out of 85 ETFs in the Large Cap Value ETFs group.
iShares Nasdaq Biotechnology Index Fund (IBB)
IBB invests in companies across diversified market capitalization operating in health care, pharmaceuticals, and the biotechnology and life sciences sectors. IBB seeks to track the investment results of the NASDAQ Biotechnology Index composed of biotechnology and pharmaceutical equities listed on the NASDAQ.
The most recent dividend declared by IBB was $0.06 in September. The ETF pays an annual dividend of $0.3, which translates into a dividend yield of 0.23%. The four-year average dividend yield for IBB is 0.21%. The trailing twelve months dividend growth rate for the fund is 87.1%.
IBB has $9.2 billion in AUM and an expense ratio of 0.46%. The ETF has an MSCI ESG Fund Rating of BBB based on a score of 5.54 out of 10.
The fund currently holds 206 companies with biotech naturally leading the way, with a nearly 80% weighting. The ETF also has an exposure of 8.9% and 8.8% to Life Sciences Tools & Services, and Pharmaceuticals, respectively. The top 3 holdings of the fund are Amgen Inc (AMGN), Gilead Sciences Inc (GILD), and Vertex Pharmaceuticals Inc (VRTX), with weightings of 7.9%, 7.5%, and 7.3%, respectively.
IBB closed yesterday’s trading session at $132.36, gaining 10% year-to-date. The ETF has witnessed a net inflow of $632.66 million over the past six months and is up 9.6% in the same period. The ETF is presently trading 9.7% below its all-time high of $146.53.
It’s no surprise that IBB is rated a “Buy” in our POWR Ratings system. It also has an “A” for Industry Rank, and a “B” for Trade Grade, Buy & Hold Grade, and Peer Grade. The ETF is ranked #21 out of 38 ETFs in the Health and Biotech ETFs group.
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IWM shares were trading at $153.79 per share on Thursday morning, up $0.48 (+0.31%). Year-to-date, IWM has declined -6.14%, versus a 3.57% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...
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