More investors are turning to dividend-themed exchange traded funds as a way to diversify their investment portfolios and generate some extra cash along the way.

ETF Trends publisher Tom Lydon spoke with Mannik Dhillon, President of VictoryShares, at the 2017 Morningstar Investment Conference in Chicago April 26-28 to talk about the growing popularity of dividend investments in client portfolios.

“Particularly for folks closer to retirement, it’s always been a great source of income,” Dhillon said. “That’s not changing. It’s only growing in terms of its need in a client’s portfolio.”

As the market environment shifts, especially with rising interest rates on the horizon, income-minded investors are beginning to also look to alternative ways to generate yields.

“What’s really happening now is that as uncertainty increases, finding different sources of income and dividends is becoming more important,” Dhillon said. “So that has not changed; it’s only increasing over time.”

Dhillon also pointed out that it is increasingly important for investors to look to quality dividend growers, especially for those nearing retirement, as they help provide a ballast or support a portfolio through rough periods while still providing opportunities for further growth and yield.

For instance, VIctoryShares recently launched the VictoryShares Dividend Accelerator ETF (NasdaqGM: VSDA), which uses fundamental criteria, including proven earnings stability, to select companies with the highest likelihood of consistently growing dividends year over year. It seeks to identify those companies early in their lifecycles and assemble them in a rules-based portfolio that emphasizes growing dividends per share.

Dividend growth companies tend to do better over time for a couple of reasons. Their dividend is growing over time, making them more in-demand from an income perspective, but, also, they generally have fundamentals or financial criteria that allow them to be able to grow their dividend over time and that makes them potentially good investments.

Compared to other dividend-growth styled ETF options out there, VSDA targets dividend growth companies earlier. For example, a lot of technology companies are not so mature that they have been growing their dividends for 20 plus years. So traditional dividend grower products wouldn’t invest in them until a lot later. By including them earlier in their lifecycles – VSDA seeks companies that have at least grown their dividends for five years – and then looking at their fundamental criteria to determine their probability of being able to keep that up, you get a much different profile.

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