With a lot of optimism abound for the stock market in 2023, higher dividends could also be a byproduct of upside in the new year. That could especially be the case for the energy sector, which saw strength amid rising fuel prices in 2022.
“After two straight years of big gains, energy stocks could outperform the market again in 2023, but this time it will be higher dividends rather than oil that will spur appetite for the sector,” a Bloomberg report said.
Higher dividends is an ideal solution for fixed income investors, especially in the current market environment given the Fed’s tightening monetary policy. While the expectation is that the Fed will decrease the pace of rate hikes in 2023, it doesn’t hurt to get added income from other sources like dividends.
“In an effort to lure income investors, energy firms have aggressively boosted dividends over the last 12 months. Diamondback Energy Inc. increased its payout 412% in the span, the most of any S&P 500 member,” the report added. “Five of the index’s 10 biggest dividend boosts have come from the energy sector, including APA Corp.’s 355% hike, Pioneer Natural Resources Co.’s 276% raise and Halliburton Co.’s 167% increase.”
Energy Dividend Exposure with a Dose of Quality
The Global X S&P 500 Quality Dividend ETF (QDIV) is one way to get energy sector dividend exposure. While not completely skewed towards the energy sector, the fund’s top holdings include energy companies found in the S&P 500.
The fund seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P 500® Quality High Dividend Index. The fund invests at least 80% of its total assets in the securities of the underlying index.
The underlying index is designed to provide exposure to U.S. equity securities included in the S&P 500® Index that exhibit high quality and dividend yield characteristics, as determined by Standard & Poor’s Financial Services LLC, the provider of the underlying index. As of December 20, the fund’s 30-day SEC yield is 2.84% while the 12-month trailing yield is 2.97%.
Overall, QDIV gives investors:
- Focus on Quality: QDIV invests in companies that score in the top 200 of the S&P 500 based on a variety of quality metrics including return-on-equity, accruals, and financial leverage.
- High Income Potential: To qualify for QDIV, a company must score in the top 200 of the S&P 500 in dividend yield.
- Monthly Distributions: QDIV has made monthly distributions 4 years running.
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