By John Koch, Senior Investment Analyst at iSectors®
Value stocks have finally flipped and started outperforming growth stocks in 2022, as many other illustrious writers have pointed out already this year, like those at Bloomberg or Kiplinger. Something that not as many have written about though, is that a certain subset of value stocks has outperformed both pure growth and pure value stocks over this same period. The chart below tells the story: quality dividend focused ETFs have outperformed both value ETFs and growth ETFs thus far in 2022.
SDY – SPDR S&P Dividend ETF in orange
VTV – Vanguard Value ETF in black
VUG – Vanguard Growth ETF in blue
Dividend ETFs give access to the cream of the crop of value stocks. Not only in the ETF referenced in the chart above, the SPDR S&P Dividend ETF, which tracks the S&P Dividend Aristocrats Index (they are called “aristocrats” for a reason. To be eligible for inclusion to this index, a company must have raised its dividend for 25 consecutive years), but there are also plenty of other dividend ETF strategies that allow access to dividend paying companies that have outperformed their growth-focused peers in 2022. Here are some examples of other dividend focused strategies that have also outperformed growth ETFs this year:
High dividend paying companies like those in the VanEck Morningstar Durable Dividend ETF (DURA). This is an ETF that focuses on companies with good financial health and then weights them based on the highest dividend yield.
Quality focused dividend paying companies like those in the First Trust Value Line Dividend ETF (FVD), which has 2 quality screens for dividend paying companies and equal weights them.
There are also dividend growth strategies that look forward instead of looking backward to try and pinpoint companies that are more likely to raise their dividend in a given year. An example of this is the iShares Core Dividend Growth ETF (DGRO). It ends up leaning closer to a “blend” strategy than the others that have been mentioned so far, but it’s main tenet is still based upon companies that pay dividends and will continue to pay dividends.
A comparison chart can be found below with year-to-date returns (as of 7/31/2022) for each of the dividend ETF strategies previously mentioned along with the Vanguard Growth ETF (VUG) to highlight how dividend ETFs have performed in 2022.
YTD Return (1/1/2022 to 7/31/2022)
SPDR S&P Dividend ETF (SDY)
VanEck Morningstar Durable Dividend (DURA)
First Trust Value Line Dividend ETF (FVD)
iShares Core Dividend Growth ETF (DGRO)
Vanguard Growth ETF (VUG)
Of course, this is just a snapshot of what has happened so far this year; it is by no means a prediction of what is going to happen in the future. However, it has been useful to see the protection these dividend-based strategies have offered in a very tumultuous year for the stock market.