Investors enjoy getting paid to wait. Through exchange traded funds, anyone may gain access to quality stocks with strong fundamentals and attractive yields.
Dividends are a nice perk when investing, but investors should not go overboard and chase after high yields as generous dividends may often signal weak share price tied to negative views.
On the other hand, investors may comb through various financial data to assess a company’s health and its ability to pay steady yields. However, the process is tedious and time consuming.
Luckily for ETF investors, there are a number of diversified dividend-themed ETFs that implement specific criteria in selecting components.
For instance, Northern Trusts’ FlexShares offers a line of quality dividend ETFs that utilize a multi-faceted Dividend Quality Score, including the FlexShares Quality Dividend Index Fund (NYSEArca: QDF), FlexShares Quality Dividend Defensive Index Fund (NYSEArca: QDEF), FlexShares Quality Dividend Dynamic Index Fund (NYSEArca: QDYN), FlexShares International Quality Dividend Index Fund (NYSEArca: IQDF), FlexShares International Quality Dividend Defensive Index Fund (NYSEArca: IQDE) and FlexShares International Quality Dividend Dynamic Index Fund (NYSEArca: IQDY).
QDF has a 3.0% 12-month yield. QDEF has a 3.00% 12-month yield. QDYN has a 3.92% 12-month yield. IQDF has a 4.23% 12-month yield. IQDE has a 4.90% 12-month yield. IQDY has a has a 4.08% 12-month yield.
Specifically, the quality dividend ETFs screen for management efficiency, profitability and cash flow. Each company has to show management efficiency, or firms that efficiently deploy capital and make smart financing decisions. Companies with wider profit margins are better positions to grow and maintain dividends than those with slimmer margins. Additionally, firms that can meet debt obligations and day-to-day liquidity needs are better capable of maintaining dividends.
“Measuring a company’s core financial health makes it possible to evaluate whether it may increase (or need to decrease) its future dividends,” according to FlexShares. “With this approach, the reliance on publicly available financial data means new dividend payers can be evaluated similarly to stocks that have paid dividends for decades. By using several lenses to evaluate financial health, an investor can gain a strong sense of how well-positioned a dividend-paying company is for success, and how protected future dividends are under current market and economic environments.”
Investors interested in learning more about FlexShares strategies and other smart-beta, dividend investments for the year ahead can attend the ETF Trends Virtual Summit on Wednesday, January 20.
ETFs are becoming a greater part of investors’ portfolios but aren’t immune to the recent stock market volatility. Rising interest rates, falling oil prices and slower growth from emerging market countries are all weighing on the stock market early in 2016.
Hear from ETF experts on specific investment strategies addressed at tackling market headwinds and identifying specific investment opportunities in this new year. This complimentary virtual conference is available to financial advisors. Registration is easy and can be attended from your home or place of work.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.