The Safest Dividend ETFs to Hold When Interest Rates Start Falling

When rates begin to fall, securities like bonds tend to look less effective and attractive due to their low yields. And as investors get closer to retirement, fixed-income securities like bonds may make up a bulk of their portfolios.

But retirees may benefit from high-yield dividend exchange-traded funds (ETFs) that can deliver a strong stream of income as well as capital growth. The dividend ETFs that tend to score well in low-rate environments invest in high-quality companies with strong financials and track records of consistently providing and increasing dividends. Some may focus on defensive sectors, known to remain stable under a variety of different market cycles.

So to clear up the smoke, we compiled a list of the safest dividend ETFs to hold when rates start falling. So let’s take a deeper dive.

Schwab U.S. Dividend Equity ETF (SCHD)

The Schwab U.S. Dividend Equity ETF (SCHD) screens for companies with strong fundamentals as well as a track record of consistent dividend payments. These companies may fare well when rates are dropping. In fact, SCHD’s main holdings are in the energy, consumer staples and healthcare sectors. The latter two are defensive sectors. Moreover, SCHD offers a high yield of about 4% and has generated a five-year return of over 36%. Plus, the SCHB gives investors access to a handful of quality companies at very low fees. Its expense ratio is just 0.06%. Moreover, the fund holds $71.64 billion in net assets.

Vanguard High Dividend Yield ETF (VYM)

Next on our list is the Vanguard High Dividend Yield ETF (VYM). This fund invests in companies forecasted to have above-average yields. This could help investors enjoy far higher income levels than they would with securities like bonds when rates drop. Among VYM’s top holdings are stocks in the financials, technology and industrials sectors. And it really comes through when it comes to diversification as it invests in nearly 600 stocks across 10 sectors.

Additionally, the VYM has a five-year return of over 60% and pays a yield of around 2.44%. And as Vanguard is known for its low fee funds, VYM comes with an expense ratio of just 0.06%. Moreover, VYM has net assets of $84.52 billion.

Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)

The Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) focuses on the so-called dividend aristocrats. These are companies known for offering high dividends and low volatility. In fact, the SPHD strategically avoids value traps by excluding from its holdings stocks that have high yields but high volatility, as these may be issued by companies at risk. SPHD’s top holdings are in real estate, consumer staples and utilities sectors.

These companies have helped SPHD provide a five-year return of over 25%. And its yield is around 4%. However, its expense ratio is a bit higher than that of others on our list. It has an expense ratio of 0.30%.

Vanguard Real Estate ETF (VNQ)

In a low-interest rate environment, real estate tends to outperform. Lower mortgage rates often attract new buyers, which could lead to bidding wars and faster price appreciation. And there are several dividend ETFs out there that focus on the real estate sector.

Among the most notable is the Vanguard Real Estate ETF (VNQ). It offers a yield of about 4%. With its focus, it can also help mitigate risk in a stock and bonds portfolio.

The VNQ invests in stocks issued by real-estate investment trusts (RFEITs). These are companies that own income producing real estate like hotels and office buildings. And it also shines for its low expense ratio of 0.13%.

iShares Core Dividend Growth ETF (DGRO)

The iShares Core Dividend Growth ETF (DGRO) focuses on companies with histories of consistently increasing dividends over time. This can give investors reliable income streams and peace of mind even in a low-rate environment. The fund has a yield of about 2% and a five-year return of over 60%.

Its top holdings include stocks in the financials, healthcare and information technology sectors. So it may benefit from the recent artificial intelligence (AI) movement.

Moreover, DRGO was given a four-star Morningstar rating against 1,059 large value funds based on risk-adjusted total returns. The fund holds total net assets of about $36 billion.

JPMorgan Equity Premium Income ETF (JEPI)

The JPMorgan Equity Premium Income ETF (JEPI) takes a two-pronged approach to generating income, which may help it succeed during times of low interest rates. JEPI engages in a strategy of selling options and investing in U.S. large-cap stocks.

It’s an actively-managed fund that uses proprietary research to find over- and undervalued stocks with preferable risk/return characteristics. Moreover, JEPI earns a high yield of over 8% and it has a five-year return of over 5%. Its top holdings are firms in the information technology, healthcare and industrials sectors. In addition, JEPI holds about $41.49 billion in net assets.