During these times of historically low interest rates, investors around the world seek safety, growth and yield. Based on the charts of popular dividend exchange-traded funds (ETFs), which we discuss below, the recent spike in volatility and subsequent dip in prices has created an interesting buying opportunity for those who use technical analysis as part of their trading strategy. (For a quick refresher, check out: 3 Ways to Add Dividends to Your Portfolio.)
Fundamentally, as the name suggests, the First Trust Dow Jones Global Select Dividend Index Fund has been designed by its managers to track the price and yield, before fees and expenses, of an equity index called the Dow Jones Global Select Dividend Index. The index universe comprises all component companies of the 25 developed-market country indexes. The top 100 highest-yielding companies are selected for inclusion of the index. The fund carries a net expense ratio of 0.58% and has total net assets of approximately $509 million.
Taking a look at the chart, you can see that the recent sell-off has pushed the price of the fund toward the support of its 200-day moving average. This long-term level of support is commonly used by technical traders as a guide for placing buy orders since it is not uncommon to see prices bounce significantly higher after testing its strength. Recent price action suggests that the moving average should be able to hold, and the fund is offering the best risk/reward setup in over two years. (For more, see: Invest in Dividend Aristocrats With This ETF.)
For investors looking for exposure to a broad range of U.S. companies with a consistent history of dividends, one of the most popular choices is the iShares Select Dividend ETF. This fund is composed of 100 U.S. stocks with five-year records of paying dividends and has total net assets of nearly $17 billion.
Taking a look at the two-year weekly chart, you can see that DVY is trading near the combined support of an ascending trendline and its 200-week moving average. These long-term support levels will likely be used as guides by traders for determining the placement of their buy and stop orders. The recent sell-off has pushed the price near the support level, generating what could be regarded as one of the best buying opportunities in recent months. (For further reading, see: 3 ETFs for Trading the Spike in Volatility.)
Another popular dividend ETF is the Vanguard Dividend Appreciation ETF, with total net assets of $34.4 billion. Taking a look at the chart below, you'll notice that a well-defined bullish pennant has formed on the chart. This popular continuation pattern is generally spotted amid a major uptrend, and a break beyond the nearby resistance could trigger a major move higher. Active traders will likely set their stop-loss orders below either the bottom trendline or the 200-day moving average depending on risk tolerance. (For further reading, check out: Top Four Dividend ETFs for 2018.)
The Bottom Line
Dividend ETFs have been overlooked by many yield-seeking investors, but bullish patterns on the charts of several popular funds suggest that prices of these funds could be headed higher over the coming few months. (For further reading, check out: The 5 Best Dividend-Paying ETFs.)
Charts courtesy of StockCharts.com. At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.