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Quick Read
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Investors are pulling out of growth and tech stocks and rotating back into dividend stocks.
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These three dividend ETFs are poised to be big beneficiaries of this trend.
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A recent study identified one single habit that doubled Americans’ retirement savings and moved retirement from dream, to reality. Read more here.
Investors are getting more selective, and this is causing growth stocks across the board to slow down. Dividend ETFs like the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT), Schwab US Dividend Equity ETF (NYSEARCA:SCHD), and Vanguard Consumer Staples Index Fund ETF (NYSEARCA:VDC) are well-positioned to be the biggest beneficiaries of this great rotation, considering investors are now focused on safety and income over growth.
There has been near-monopolistic dominance by AI stocks over the past three years, but that is waning quickly. The S&P Software & Services Select Industry Index has tumbled by 22% from its peak this year. Hardware AI stocks are doing better, but investors have noticeably reduced their enthusiasm. No longer do you see Nvidia (NASDAQ:NVDA) or Palantir (NASDAQ:PLR) stock jump by double digits on earnings. A new oil crisis is brewing, and the mishmash of all these volatile factors is pushing even the most ardent of bulls into dividend stocks.
Here’s why these three ETFs can ride the coattails of this rotation.
Read: Data Shows One Habit Doubles American’s Savings And Boosts Retirement
Most Americans drastically underestimate how much they need to retire and overestimate how prepared they are. But data shows that people with one habit have more than double the savings of those who don’t.
iShares 20+ Year Treasury Bond ETF (TLT)
People often say that if a recession comes, there’s no refuge… but there is one. Treasuries are the best bet when everything else is falling, because you have the backing of the U.S. government. These Treasuries are yielding surprisingly high amounts despite interest rate cuts, and that is due to the sheer amount of uncertainty in the markets.
TLT holds longer-term bonds, so the yield is more reliable, and it is not sensitive to near-term movements in interest rates. TLT has been an outlier in recessions, since it tends to move up. In 2008, it surged from $90 to nearly $130, and it rose by over 20% in 2020. TLT is currently down to $86 as of this writing. I believe this is close to, if not at, the floor price already. I see up to 50% upside from here if a strong recession hits and the Federal Reserve reacts by cutting rates quickly. Longer-term Treasuries have solid yields, so they’re naturally going to be much more valuable in this scenario.
TLT gets you a 4.5% dividend yield with a monthly distribution. The expense ratio is just 0.15%, or $15 per $10,000.
Schwab US Dividend Equity ETF (SCHD)
The Schwab US Dividend Equity ETF might be a banal pick for some. However, SCHD is exactly the kind of ETF you want to hold during times like these. You likely already know about it, though you may have the wrong idea about how good this ETF is.
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SCHD has underperformed the broader market in the past few years due to the fund having just 9% tech exposure. SCHD’s underperformance has convinced many to move into covered call ETFs instead. If a downturn hits now, this will prove to be a devastating mistake, as covered call ETFs have exposure to tech stocks and don’t come with the reliability of owning cash-rich dividend stocks. That’s why the market has flooded back into SCHD in recent months, and the ETF is up 12% in just the past six months.
I don’t expect it to fly in the face of a recession, but it can fare much better in one. You get the perfect setup for the current environment, with a dividend yield of 3.4%. That’s above inflation, and you also get good upside potential on top. The expense ratio of 0.06% also saves plenty of money if you want to buy, reinvest, and cash out later in a few decades.
All things considered, I’d give SCHD the lion’s share of any long-term dividend ETF portfolio. TLT is a close second if you believe a downturn is imminent.
Vanguard Consumer Staples Index Fund ETF (VDC)
VDC isn’t going to drown you in cash. It has a dividend yield of just 2%.
What it will do, however, is add significant ballast to your portfolio. VDC performed very well during 2022, and if a similar tech selloff hits in 2026, you’re going to be much safer.
VDC is up 9.7% year-to-date, and I expect it to end the year up double digits. Consumer staples stocks have underlying businesses with inelastic demand and plenty of cash. They can ride out the strongest of recessions and rebound in earnest just like they did in every previous recession.
Even if we get a 2022-esque inflation wave, customers will still buy consumer staples. They’re called “staples” for a reason. People will cancel their AI subscriptions before they cut back on toothpaste.
VDC has an expense ratio of just 0.09%.
Data Shows One Habit Doubles American’s Savings And Boosts Retirement
Most Americans drastically underestimate how much they need to retire and overestimate how prepared they are. But data shows that people with one habit have more than double the savings of those who don’t.
And no, it’s got nothing to do with increasing your income, savings, clipping coupons, or even cutting back on your lifestyle. It’s much more straightforward (and powerful) than any of that. Frankly, it’s shocking more people don’t adopt the habit given how easy it is.