Dividend ETFs Outperforming Bonds Amid Rising Yields
Are Dividend ETFs Like SCHD, DGRO, VYM Appealing As Bond Yields Jump?
Image: Benzinga
Top dividend ETFs like Schwab US Dividend Equity (SCHD), iShares Core Dividend Growth (DGRO), and Vanguard High Dividend Yield (VYM) have reached record highs despite declining yields. With bond yields rising, particularly the ten-year Treasury yield at 4.55%, these ETFs still offer potential for growth, making them appealing for investors seeking returns beyond fixed income.
- 01SCHD, DGRO, and VYM yield 3.22%, 1.96%, and 3% respectively, lower than current bond yields.
- 02The two-year Treasury yield stands at 4.12%, and the ten-year yield is at 4.55%.
- 03A $10,000 investment in a ten-year bond yields $455 annually, compared to $322 from SCHD.
- 04Over five years, SCHD, DGRO, and VYM have returned 52%, 80%, and 71% respectively.
- 05Analysts predict continued stock market growth due to elevated earnings and attractive equity prices.
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This week, leading dividend exchange-traded funds (ETFs) such as Schwab US Dividend Equity (SCHD), iShares Core Dividend Growth (DGRO), and Vanguard High Dividend Yield (VYM) reached record highs, despite a decline in their dividend yields. Currently, SCHD offers a yield of 3.22%, while DGRO and VYM yield 1.96% and 3%, respectively. These yields are significantly lower than the rising government bond yields, with the two-year Treasury at 4.12% and the ten-year at 4.55%. The increase in bond yields is driven by rising consumer inflation, with the Consumer Price Index (CPI) at 3.8% and the Producer Price Index (PPI) at 6%, both above the Federal Reserve's target of 2%. Despite the lower yields from dividend ETFs, they provide growth potential that bonds lack. For instance, a $10,000 investment in SCHD would yield only $322 annually, whereas the same amount in a ten-year bond would yield $455. However, over the past five years, SCHD, DGRO, and VYM have delivered total returns of 52%, 80%, and 71%, respectively, indicating their potential to outperform bonds in the long run.
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Investors seeking income may find dividend ETFs less appealing compared to bonds due to lower yields, but the potential for capital growth remains a significant factor.
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