Skip to Content
ETF Specialist

Assessing Dividend ETFs in a Rising-Rate Environment

Near-term interest-rate risk doesn't change the core qualities that investors should look for in dividend-strategy exchange-traded funds.

Mentioned: , , , , , , ,

Disclosure: Morningstar Inc.'s Investment Management division licenses indexes to financial institutions as the tracking indexes for investable products, such as exchange-traded funds, sponsored by the financial institution. The license fee for such use is paid by the sponsoring financial institution based mainly on the total assets of the investable product. Please click here for a list of investable products that track or have tracked a Morningstar index. Neither Morningstar Inc. nor its investment management division markets, sells, or makes any representations regarding the advisability of investing in any investable product that tracks a Morningstar index.

Despite the Federal Reserve's pullback on its tapering plans, investors remain spooked by the prospect of rising rates this Halloween season. Fixed-income investors aren't the only ones with cause to worry; dividend exchange-traded funds, a popular strategy during the recent years of record low rates, are also sensitive to rate increases. Dividend ETFs are not made equal, however. Their portfolios can vary widely from strategy to strategy depending on the methodologies of the indexes they track. Two of the largest dividend-strategy ETFs,  Vanguard Dividend Appreciation ETF (VIG) and  iShares Select Dividend (DVY), have such different methodologies that only 17% of their portfolios overlap. So, because dividend strategies can differ so much, they'll be impacted differently by rate increases. Today, we pop the hood and see which of the largest and most popular dividend-strategy ETFs are most appropriately positioned to help investors gather dividend income without taking on significant interest-rate risk.

Abby Woodham does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.