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Although recessions are normal parts of the business cycle, anyone who has lived through one can tell you it could be financially devastating.
These are periods associated with economic decline, rise in unemployment, reduced wages, business failures and a contraction in financial markets.
This can be crippling to investors, especially those near or in retirement. To defend their portfolios from the impacts of economic events such as recessions, many investors have relied on dividend ETFs.
But not all dividend ETFs are created equal. The ones that may hold resilient during a recession invest in high-quality companies with strong financials such as cash flow and low debt. They also have track records of consistent dividend payouts and are generally associated with low volatility. Many are largely invested in defensive sectors, which are known to generally remain stable under various market cycles.
So to make it easier for you, we devised a list of seven dividend ETFs that may remain resilient during such market downturns.
Let’s take a closer look.
Vanguard High Dividend Yield ETF (VYM)
The Vanguard High Dividend Yield ETF (VYM) invests in more than 500 large value companies believed to deliver higher-than-average yields. This could give investors a sense of confidence that this well-diversified ETF contains stocks of mature and stable companies with strong financials. Among its top holdings are firms in the financials, technology and industrials sectors.
VYM has generated an impressive five-year return of more than 64% and offers a yield of around 2.44%. It also stands out for its low expense ratio of 0.06%.
Schwab U.S. Dividend Equity ETF (SCHD)
The Schwab U.S. Dividend Equity ETF (SCHD) invests in high-quality companies screened for strong financial strength compared to their peers. It also seeks out companies that make sustainable dividend payments.
Its top holdings lie in energy and defensive sectors like consumer staples and healthcare. SCHD has delivered a five-year return of over 35% and pays a yield of about 4%. Moreover, the fund also has a low expense ratio of 0.06%.
Vanguard Dividend Appreciation ETF (VIG)
The Vanguard Dividend Appreciation ETF (VIG) focuses on companies that have records of increasing their dividends year over year. It’s well diversified across more than 300 large-cap companies with overall strong fundamentals. 27% of VIG’s portfolio is devoted to the information technology sector, which has benefited from the artificial intelligence (AI) boom. It’s also heavily invested in the financials and healthcare sectors.
Moreover, VIG has a five-year return of over 60% and a yield of about 1.62%. The fund holds net assets of $119.98 billion.
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
One of the Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)’s key objectives is to provide high yields, but avoid value traps by steering clear of high-yielding companies with high volatility, which could signal distress. This strategy could prove beneficial in times of recession.
The fund is highly concentrated in the real estate, consumer staples and utilities sectors. Moreover, SPHD has a five-year return of about 28% and a yield of around 4%. And it has an expense ratio of 0.30%.
SPDR S&P Dividend ETF (SDY)
The SPDR S&P Dividend ETF (SDY) looks to the so-called Dividend Aristocrats. It invests in companies with a track record of increasing dividends for at least 20 consecutive years, which can give consumers stability and reliability under various market cycles. Its top holdings include companies among the industrials, consumer staples and utilities sectors. Plus, SDY has a yield of about 2.61% along with a five-year return of about 40%. It also has an expense ratio of 0.35%.
iShares Core High Dividend ETF (HDV)
The iShares Core High Dividend ETF (HDV) focuses on 75 high-quality and well-established companies screened for financial strength. Its main holdings are composed of companies in the consumer staples, energy and healthcare sectors.
HDV has a five-year return of nearly 48% and a yield of around 3.22%. Plus, it holds net assets of about $11.97 billion. It has earned a Morningstar Silver Medalist rating. And HDV also stands out for its competitive expense ratio of 0.08%.
Amplify CWP International Enhanced Dividend Income ETF (IDVO)
For global exposure, you can turn to the Amplify CWP International Enhanced Dividend Income ETF (IDVO). It seeks income by investing in international dividend-paying stocks and by opportunistically writing covered calls on those stocks. It also aims to reduce volatility, especially during broad-based market declines.
The fund has an impressive five-year return of more than 72% and a yield of about 5.43%. IDVO is an actively managed fund with a slightly higher expense ratio of 0.66%.
The fund’s holdings are mainly centered in Canada, the United Kingdom and China. And its top holdings are primarily in the financials, materials and industrials sectors.