'Dividend' and Conquer: Dividend-Focused Index Investing Outperforms

Note: This article is courtesy of Iris.xyz

By Nasdaq Global Information Services

New Research Shows that Dividend-Focused Stocks Bring High Performance and Low Volatility

As we’ve seen with the aftermath of the U.K.’s Brexit vote, one event can drive volatility in the markets quickly and significantly. Those who play the market understand that there is risk inherent in all investments, however, one asset class has both outperformed its peers and offers a continuous relative safe haven in times of volatility, and that is dividend-focused index funds.

Indexes constructed with dividend-paying stocks are some of the first significant building blocks of the smart beta market, and it’s easy to see why they continue to be popular. In today’s very low-interest rate and volatile investment climate, investors are continually attracted to strategies that are low-volatility, high performance and high quality. A dividend-based index hits all of these points.

Related: An Attractive, High-Quality Dividend ETF Strategy

Dividend-focused indexes are comprised of securities from public companies that pay dividends to shareholders (see Nasdaq Dividend AchieversTM). There are several advantages to this approach that help insulate these funds from volatility. These companies are typically older, more established and have stood the test of time. The fact that they pay regular dividends to shareholders attests to both their stability as a company and to their cash position at any given moment. A company that is prepared to send cash to its shareholders is less likely to take unmitigated risks and is more likely to have substantial cash on hand.