History Says This Is the Smartest Dividend ETF to Buy With $1,000 Right Now

When stock markets head south, dividends become much more sought after by investors. The reason is pretty straightforward: They historically outperform the broader market in downturns and are essential holds.

If you look at past bear markets or corrections, dividend stocks have carried the S&P 500. In the 1970s, dividends accounted for 73% of the total return of the S&P 500, and in the 2000s, when the S&P 500 was down 3%, dividends accounted for a 2% return.

The S&P 500 has enjoyed a four-year bull market, but its valuation is historically high, which often leads to a correction or bear market. We can't predict when that will happen, but the Nasdaq Composite has already corrected twice this year, so it could certainly happen again given the rickety state of the U.S. economy and the overvalued S&P 500.

For investors, that should signal a warning to add some downside protection to your portfolio with a dividend exchange-traded fund (ETF). One of the smartest places to invest $1,000 right now is the Invesco S&P Ultra Dividend Revenue ETF (NYSEMKT: RDIV) for its high dividend yield and high total return.

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Outperformance when you need it

For starters, the Invesco S&P Ultra Dividend Revenue ETF has a great yield of 3.72%, which is among the highest you will find.

And when you examine its performance over time, with dividends reinvested, it stands up well. But it really shines when the market dips.

The Invesco S&P Ultra Dividend Revenue ETF tracks the S&P 900 Dividend Revenue-Weighted Index, which has a unique methodology. Right off the top, it excludes the top 5% of stocks by dividend yield, and then it excludes the top 5% of stocks within each sector by dividend payout ratio. It does this to eliminate any value traps or dividends that might be unsustainable. Then, it selects the top 60 stocks with the highest dividend yields. Those 60 stocks are then re-weighted according to revenue earned, with no single stock receiving a weight of more than 5%.

The three largest holdings are Prudential Financial (NYSE: PRU), Ford Motor Company (NYSE: F), and US Bancorp (NYSE: USB).

The result has been consistently high distribution yields combined with solid price returns. That has added up to strong total returns.

Over the past year, the ETF has delivered a total return of 18.6%, beating the S&P 500. Over the past five years, it has averaged a 12.1% annualized return, similar to the S&P 500's 12.8%.

Over the past 10 years, it has averaged a 10.8% return, short of the S&P 500's average annualized 10-year total return of 15.1%.

But its true value is as a downside protector. In the last extended bear market, which occurred in 2022, the Invesco S&P Ultra Dividend Revenue ETF posted a total return of 7.1%, compared with the S&P 500, which fell 18.2%. That is significant outperformance when you need it.

That's why it makes a lot of sense to invest in this dividend ETF right now.

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends U.S. Bancorp. The Motley Fool has a disclosure policy.