Exploring Dividend Stocks Amid Market Corrections: An Investment Guide
Many investors are concerned about the recent decline in the market, particularly with the Nasdaq Composite (NASDAQINDEX: ^IXIC) entering a correction phase. Historically, such corrections occur every few years, yet the stock market recovers from each downturn. This serves as a reminder to keep short-term funds out of stocks to avoid the need to sell at lower prices in a market slump. For long-term investments, consider focusing on dividend-paying stocks.
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Understanding the Value of Dividends
Dividend-paying stocks are often overlooked in favor of more exciting growth stocks. However, they can offer stability, particularly during market downturns. Historical data from a Hartford Funds report illustrates this point:
|
Dividend-Paying Status |
Average Annual Total Return, 1973-2023 |
|---|---|
|
Dividend growers and initiators |
10.19% |
|
Dividend payers |
9.17% |
|
No change in dividend policy |
6.74% |
|
Dividend non-payers |
4.27% |
|
Dividend shrinkers and eliminators |
(0.63%) |
|
Equal-weighted S&P 500 index |
7.72% |
Data source: Ned Davis Research and Hartford Funds.
Investing in healthy and growing dividend-paying companies offers several benefits:
- Stock prices are likely to appreciate over time.
- Shareholders receive regular dividend payments.
- Dividends are likely to grow, often outpacing inflation.
Strategies for Investing in Dividends
If you’re interested in dividend stocks, you have several options for investing. One method is to research and evaluate individual stocks to handpick the most promising candidates for your portfolio.
For a simpler approach, consider investing in a fund that focuses on generating income through dividends.
Introducing the Fidelity High Dividend ETF
The Fidelity High Dividend ETF (NYSEMKT: FDVV) is an exchange-traded fund (ETF) that tracks the Fidelity High Dividend Index. This index focuses on “large and mid-capitalization dividend-paying companies that are expected to maintain and grow their dividends.”
Here’s why this ETF is a smart choice for dividend-focused investing:
Performance Comparison
Let’s examine the ETF’s performance in relation to a low-cost S&P 500 index fund:
|
ETF |
Recent Yield |
3-Year Avg. Annual Return |
5-Year Avg. Annual Return |
|---|---|---|---|
|
Fidelity High Dividend ETF |
2.69% |
12.71% |
15.76% |
|
Vanguard S&P 500 ETF (NYSEMKT: VOO) |
1.21% |
12.85% |
15.93% |
Data source: Morningstar.com, as of March 10, 2025.
This ETF not only keeps pace with the S&P 500 but also provides a higher dividend income due to its better yield. While future returns may vary, both funds have been beneficial for shareholders over the past five years.
Portfolio Analysis
Currently, the Fidelity High Dividend ETF includes 108 holdings, with its top 10 holdings accounting for about 30% of its total value. These holdings consist of:
|
Stock |
Percent of ETF |
|---|---|
|
Apple |
5.67% |
|
Nvidia |
4.85% |
|
Microsoft |
4.67% |
|
JPMorgan Chase |
2.54% |
|
Visa |
2.43% |
|
Procter & Gamble |
2.18% |
|
Philip Morris International |
2.12% |
|
Coca-Cola |
2.10% |
|
ExxonMobil |
2.09% |
|
Broadcom |
1.89% |
Data source: Fidelity.com, as of March 10, 2025.
The ETF allocates around 42% of its assets to large-cap companies, 30% to giant companies, 20% to mid-sized firms, and 9% to small companies. While dividend stocks are frequently linked to traditional industries like energy and consumer products, this ETF holds about 22% in information technology and 21% in financial services sectors. The portfolio is predominantly value-oriented as opposed to focusing solely on growth stocks.
Cost Efficiency
Minimizing investment fees is always a smart strategy. The Fidelity High Dividend ETF keeps expenses low with an expense ratio of just 0.16%. This means investors pay only $16 on a $10,000 investment.
Exploring Alternatives
While the Fidelity High Dividend ETF may not boast the highest yield among dividend-focused ETFs, it offers commendable returns and a solid approach to dividend investing.
Exploring Investments: Should You Purchase Fidelity High Dividend ETF Today?
In today’s investment landscape, plenty of attractive options exist, particularly in dividend-focused ETFs and high-growth ETFs. As you build your portfolio, consider incorporating at least one from each category. It’s essential to prioritize saving and investing for your financial future.
Is Fidelity Covington Trust – Fidelity High Dividend ETF Worth a $1,000 Investment?
Before deciding to invest in Fidelity Covington Trust – Fidelity High Dividend ETF, it’s wise to weigh some factors:
The Motley Fool Stock Advisor analyst team has recently pinpointed what they consider the 10 best stocks for current investors, and notably, Fidelity Covington Trust – Fidelity High Dividend ETF is not included in this list. The highlighted stocks have significant potential for impressive returns in the years ahead.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Selena Maranjian holds positions in Apple, Broadcom, Microsoft, Nvidia, Procter & Gamble, and Visa. The Motley Fool has positions in and recommends Apple, JPMorgan Chase, Microsoft, Nvidia, Vanguard S&P 500 ETF, and Visa. The Motley Fool recommends Broadcom and Philip Morris International, and has specific options recommendations for Microsoft. Please refer to the Motley Fool’s disclosure policy for more information.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
