Dividend ETFs outperform as investors look to avoid market volatility

Yahoo Finance's Emily McCormick reports on how dividend-paying stocks are performing amid heightened market volatility.

Video transcript

- Welcome back to Yahoo Finance Live, everyone. Market volatility pushing investors into more steady waters these days. Dividend paying stocks-- shares of such companies have been doing quite well in 2022. And here to tell us more about this is Yahoo Finance's Emily McCormick. Emily?

EMILY MCCORMICK: Well, Brad, as investors seek a haven from these volatile markets, investors are back in dividend paying shares. Now as we can see here, case in point, the iShares core high dividend ETF is up about 5.6% for the year to date. And we'll point out that this trend was first reported by the "Wall Street Journal."

But if we take a look at how this ETF has been performing, far outperforming and leading compared to the S&P 500, down about 9.8% through yesterday's close for the year to date. Now taking a look at some of the components within this ETF as well as the Vanguard high dividend yield ETF, as we can see, those shares down a bit for the year to date but still outperforming the broader market. Many of these names are ones that, of course, are high paying when it comes to dividends and are far outperforming the market on an individual stock basis as well.

Now ExxonMobil is one of these-- the oil majors, of course. The energy sector in general really getting bid higher so far in 2022. It's up about 49%. And the dividend yield on ExxonMobil is about 3.8%.

A similar case when we take a look at the year to date performance for Chevron, also up more than 40%. Now taking a look at some of the consumer staples, some of these cereal brands, some of the household names such as Kellogg as well as General Mills, Kellogg up about 9%. It also just recently reported its latest quarterly earnings results, and that dividend yield for that stock is also about 3.4%.

Now what's really particularly interesting about this trend is the fact that dividend yielding stocks tend to actually do poorly in rising interest rate environments like the one that we're in now. Now the reason that we're really seeing this increase in this particular case is because rising interest rates are currently coming alongside an increase in inflation. Now because of that, because we're getting talk about a potential recession, investors are looking for a little bit more of a defensive positioning, looking for these stocks that are going to give them steady cash flows. And then one other thing, of course, is because we are in this inflationary environment, we're getting outperformance in general of financials as well as energy shares, which also happen to be high dividend paying shares. So again, still seeing quite a bit of outperformance when we look at a number of these names, especially when it comes relative to the S&P 500, guys.

- Yeah, it is really an interesting phenomenon considering the history to your point, Emily. Thank you so much. Appreciate it.