November was the best month of this year so far for dividend stocks. Even with the S&P 500 being down more than 20% at different points during 2022, many dividend ETFs have still been able to post positive returns, cementing their position as one of the most consistent and best-performing groups of 2022. Every dividend ETF posted a positive return last month and the top 30 best-performing funds all gained at least 12%.
December, however, might look quite a bit different. I really think that the November inflation report coming next week could be a big market catalyst and I fear it might be to the downside. The November data we’ve seen so far suggests that the economy could be in better shape than expected and next week’s inflation reading could also surprise to the upside. If that happens, I believe there’s a good chance that stocks trend lower heading into the end of the year.
That could mean good things for dividend ETFs in December on a relative basis, but might not necessarily translates into further gains. If last month represented a period where investors could throw their money at any dividend ETF and make money, this month is likely to be more of a picker’s market where investors have to identify opportunities.
Reviewing November’s Dividend ETF Picks
I could take a victory lap and point out that all 5 of my picks last month beat the S&P 500, but let’s remember that EVERY dividend ETF posted a positive return in November and dividend stocks, in general, were an above average performing group. I’ll certainly take the win, but, admittedly, the bar was easier to clear last month.
I leaned more defensive with last month’s picks anticipating that October’s equity rally would ease. That didn’t really play with large-caps gaining another 5%, but the defensive lean did help.
The FlexShares Quality Dividend ETF (QDF) and the WisdomTree U.S. Quality Dividend Growth ETF (DGRW) offered up the quality tilt that I was looking for, while the ProShares S&P 500 Dividend Aristocrats ETF (NOBL) was a straight bet on long-term dividend growers. All three beat the S&P 500, but outperformance was more modest.
I liked the value tilt of the Capital Group Dividend Value ETF (CGDV) since value has outperformed growth all year and conditions have been favoring value again heading into 2023. The biggest winner, however, was the Pacer Global Cash Cows Dividend ETF (GCOW). International stocks had a very good month relative to U.S. stocks and GCOW’s nearly 80% allocation to developed markets in both Europe and Asia paid big, well, dividends!
Heading into what could be a volatile month, here are three dividend ETFs that like as we wrap up 2022.
iShares International Select Dividend ETF (IDV)
This is based on my belief that international stocks will continue to outperform U.S. stocks in December. The dollar is continuing to trend lower, a tailwind for international investments and optimism is beginning to grow in Europe that an expected winter energy crisis and the economic effects that come with it might not be as bad as anticipated.
If you’re familiar with the iShares Select Dividend ETF (DVY), you’ll be familiar with this one because it follows a similar strategy. It targets 100 high-yielding stocks that demonstrate both positive dividend growth trends and dividend sustainability. The yield-weighting strategy of the fund could add a bit of volatility to the equation, but that 7.6% yield sure is juicy.
Capital Group Dividend Value ETF (CGDV)
I picked this one in November and I’m going to go with it again in December. I just think that the characteristics of the underlying portfolio should react well to current market conditions and what I believe will outperform moving forward.
In general, the fund targets companies with sound financial characteristics that pay dividends or have the potential to pay dividends. That last point is important because stocks don’t necessarily need to be dividend payers to be included (although most of them do). Overall, CGDV aims to pay a higher yield than the broader U.S. stock market so this will be a consideration when building and weighting the portfolio.
The “value” part of the strategy comes not just from looking for attractively valued stocks, but also the fact that its sector composition leans in that direction as well. Industrials and energy are overweighted, while tech is underweighted.
Schwab U.S. Dividend Equity ETF (SCHD)
I think that SCHD is perhaps the best dividend ETF in existence, so I have no problem including it on a list like this in almost any situation. This ETF consider all three pillars of dividend investing - high yield, dividend quality and dividend growth. It screens for dividend history (a minimum of 10 consecutive years of dividend payments) and only considers companies that meet several financial health criteria (cash flow to debt, return on equity, dividend yield, etc.). The final portfolio gets narrowed down to 100 market cap weighted names).
The portfolio is cheap on a valuation basis. It has a rock bottom expense ratio. It has an above average and a quality tilt. There’s just not much here that’s not to like.
