“The result is a portfolio that at a high level doesn’t look all that dissimilar to the S&P 500 but is much cleaner on the inside. The Quality Dividend ETF is currently overweight financials, which could benefit from an impending Fed rate hike, and utilities, an area of the market traditionally more conservative while delivering above average yields. It’s underweight primarily in the healthcare and technology sectors,” according to a Seeking Alpha analysis of QDF.
QDF screens 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.
Related: Low U.S. Interest Rates Boost International Dividend ETFs
“Clean, quality dividends are more important today than maybe any time since the financial crisis. Earlier this year, Fitch raised its 2016 forecast on high yield debt defaults up to 6% overall, while saying that defaults in the troubled energy sector could surpass 20%. While dividend payments on equities and principal repayments on debt aren’t the same thing, it does suggest that the overall economic environment is making payments to shareholders a little less certain,” adds Seeking Alpha.