Next year may not be a repeat of the past three years, and your portfolio can benefit tremendously from a shake-up. Dividend ETFs like SPDR Dow Jones Industrial Average ETF Trust (NYSEARCA:DIA | DIA Price Prediction), Fidelity MSCI Utilities Index ETF (NYSEARCA:FUTY), and iShares International Select Dividend ETF (BATS:IDV) can help you do just that.
Google’s CEO, Sundar Pichai, recently made some alarming remarks about the ongoing AI rally. He sees some “irrationality” in the current AI boom, saying that no company would be unscathed if the bubble were to pop. Obviously, this includes Google, and for the CEO of one of the biggest AI beneficiaries to say it means storm clouds may be brewing on the horizon.
He isn’t the only one, though. OpenAI’s CEO, Sam Altman, also said in August, “Are we currently in a period where investors are excessively excited about AI? I believe the answer is yes”.
If AI is indeed in a bubble and the rally collapses in the coming months, the impact on the rest of the market could be catastrophic. Some investors are already moving their profits to defensive dividend ETFs in anticipation. These stocks will soften the blow if the market goes down sharply. And even if the rally does continue unabated, you’ll still get to cash in the dividends and partake in some upside.
SPDR Dow Jones Industrial Average ETF Trust (DIA)
The SPDR Dow Jones Industrial Average ETF Trust tracks the price and yield performance of the Dow Jones Industrial Average. This gives it exposure to 30 blue-chip U.S. stocks that usually do better whenever there is a downturn. If that downturn is centered around a non-blue-chip theme, like AI, they can do even better.
Most of your ETF holdings likely have Nvidia (NASDAQ:NVDA), followed by a handful of more big-cap tech stocks as their top 10 holdings. As a result, you’re looking at overlapping exposure that puts you in great danger if the AI rally plateaus and investors jump ship.
DIA, on the other hand, has 9 of its 10 top holdings in companies that are not in the tech industry. All 10 of its holdings generate significant cash flows and can do well regardless of what happens to the AI rally.
Furthermore, you get paid monthly. The yield itself is just 1.45% but is growing. The expense ratio is 0.16%, or $16 per $10,000.
Fidelity MSCI Utilities Index ETF (FUTY)
The Fidelity MSCI Utilities Index ETF is an ETF that tracks the MSCI USA IMI Utilities 25/50 Index. The index gives you exposure to the U.S. utilities sector, which is one of the best ways to diversify and add ballast to your portfolio at the moment, all while being paid good dividends.
The utilities sector is full of stable cash cows that rarely take a bona fide hit to their fundamentals. Moreover, these utility stocks are especially insulated against tariffs and any sudden downturn in the tech sector in particular.
The biggest holdings are NextEra Energy (NYSE:NEE) at 11.35%, Constellation Energy (NASDAQ:CEG) at 6.97%, Southern Co (NYSE:SO) at 6.55%, Duke Energy (NYSE:DUK) at 6.27%, and American Electric Power (NASDAQ:AEP) and 4.26%.
You get a dividend yield of 2.55% with a very low expense ratio of 0.08%, or $8 per $10,000.
iShares International Select Dividend ETF (IDV)
The iShares International Select Dividend ETF gives you exposure to high dividend-paying stocks from developed markets outside the United States. It tracks the Dow Jones EPAC Select Dividend Index.
It’s a good idea to have international exposure to avoid any tariff-related setbacks in the market and benefit from the de-dollarization trend. The U.S. dollar has depreciated 10.6% against the Euro year-to-date. Central banks worldwide are aggressively stocking up on gold and focusing on alternative currencies to avoid the fallout from potential sanctions. Plus, if a country is de-dollarizing, this incentivizes U.S. policymakers to give them a better deal in trade negotiations to ensure they stay within the USD system.
If the dollar keeps losing value and you hold international stocks, you’ll be a winner as foreign assets are worth more in USD. Plus, you get solid dividends, as IDV yields 4.58%. The expense ratio is 0.50%, or $50 per $10,000.
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