The prospect of higher-than-expected rates hike and rising bond yields have diminished the appeal of dividend stocks and ETFs. This is especially true given the robust January job data, which showed the fastest pace of wage growth in more than eight years, as well as the latest Fed minutes.

Both reflect stronger economy and signs of an uptick in inflation, thereby raising the speculation of more rates hike than the three lift-offs penciled in by the Fed for this year. As a result, bond yields have risen sharply over the past few weeks, taking away the sheen from this corner of the investing world. However, bouts of volatility in the stock market have rekindled investors’ love for the products that provide stability and safety in a rocky market.

In particular, higher rates will lead to a rise in borrowing costs, thereby hurting economic growth. Additionally, Washington turmoil, geopolitical tensions, and stretched valuations have added to the woes. Nothing seems a better strategy than picking dividend-focused products in this kind of an environment.

Dividend-focused products offer safety in the form of payouts and stability in the form of mature companies that are less volatile to large swings in stock prices. Dividend paying securities are major sources of consistent income for investors, creating wealth when returns from the equity market are at risk. This is because the companies that pay dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.

While the dividend space has been crowded, we have highlighted five smart beta dividend ETFs for investors seeking good yields as well as returns in a rocky market. This is because the smart beta strategy helps to capture market inefficiencies in a transparent way by adding extra metrics like volatility, revenue, earnings, momentum, equal weight and other fundamental factors to the market cap or rules-based indices.

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