There are some fundamental reasons supporting America’s bullish and resilient stock market, which accounts for about 60% of the total value of the world’s publicly traded stocks.
First, earnings are strong, with nearly 80% of the S&P 500 companies reporting first-quarter results that have beaten analyst earnings estimates.
Second, the comeback of technology shares has been a driving force behind the stock rally as artificial intelligence demand soars.
Third, global liquidity remains robust despite the Middle East conflict, and though higher energy prices are damaging to smaller countries, the U.S. and China have significant reserves. China imports about 40% of its oil but has three times more oil than America stashed away and controls over 70% of the global solar, wind, battery and EV supply chains.
Fourth, the psychology of dip-buying remains strong.
All of this is very encouraging, but much of this may already be priced into stock prices – so you need to stay optimistic but also be mindful of getting carried away. This leads to this week’s discussion.
Warren Buffett certainly paid attention to stock prices and valuations.
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The closely watched Buffett indicator divides the total value of all U.S. stocks by the total economic output (GDP) of the United States, delivering one simple number.
Right now, the index is at its highest reading ever – 232% – indicating that stocks are historically stretched and well above their last two all-time highs: a 219% reading seen at the height of the 2021 pandemic stock market boom, and a 163% level at the 2000 peak of the dot-com bubble.
The world we live in now may be different. To me, this is just a prompt to take some opportunities to take some profits and not get too carried away.
One step to take is to review your stock portfolio and make sure it is not mostly aggressive growth stocks and has a healthy core of dividend-rich stocks. While often overlooked, Fidelity research highlights that from 1930 to 2024, reinvested dividends produced about 40% of the S&P 500’s total returns.
This brings me to Dividend Aristocrats – companies that have increased dividends for 25 consecutive years. This is awfully impressive given that these companies had to increase dividends during the dot-com crash, the 2008-2009 Global Financial Crisis and the pandemic.
In turn, this requires consistent cash flow, strong balance sheets, quality management, and pricing power.
You could buy specific Dividend Aristocrat stocks, such as Chevron (CVX), of course, but today I recommend an ETF that is sector-diversified, avoids extreme single-stock concentration, and includes a basket of companies with established profitability.
We have some choices.
3 ETFs to Add Dividends to Your Portfolio
The ProShares S&P 500 Dividend Aristocrats ETF (NOBL) holds 75+ equal-weighted positions with heavy Consumer Staples (23%) and Industrials (19%) exposure.
The Vanguard High Dividend Yield ETF (VYM) holds a broader 560 or so holdings with a very low expense ratio.
The WisdomTree U.S. Quality Dividend Growth Fund (DGRW) takes a somewhat different multi-factor strategy, screening for earnings growth and return on equity as well as dividend history. This ETF has a higher 25% exposure to technology, including 5% each in Apple and NVIDIA. This has produced a superior return but with more risk.
These ETFs would be a welcome addition to an equity portfolio seeking a bit more ballast and dividend income, as well as relatively modest and consistent price appreciation.
I recommend one of the above in my Cabot Explorer, as well as the best dividend play for Asia, Europe and emerging markets. Join today to learn about all four of these ideas.
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