Dividend ETFs Can Help Provide More Stable Returns

With equity markets hovering around record highs, more risk-averse investors may consider dividend exchange traded fund strategies.

“While the stock market continues to trade in uncharted territory, investors can think of adopting defensive strategies based on their risk appetite by investing in high-dividend yield stocks. Dividend is an important source of return for shareholders,” Palka Chopra, senior vice president at Master Capital Services, told Money Control. “Buying dividend stocks can be a great approach for investors who are looking forward to generate income and those who are simply aiming to build wealth by reinvesting dividend payments.”

Chopra argued that most dividend-paying stocks come from defensive sectors, which are also less affected by economic downturns.

“Conservative investors who are looking for less volatile equity funds can also choose to include dividend funds in their investment portfolio to reduce the risk factor over the long term,” Chopra added.

As the markets trade near record highs, traders could lock in profits at current levels and redeploy some cash amount toward dividend yielding stocks that suit their respective risk profiles.

“Dividend yield investing is basically looking for mature companies which generate more cash and are not able to deploy further in their businesses. This type of investing is best suited for people who are looking for better returns than debt but want to iron out the risks related to equity investing,” Vinit Bolinjkar, head of research at Ventura Securities Ltd, told Money Control.

ETF investors can look to products like the SmartETFs Dividend Builder (NYSE Arca: DIVS) and the SmartETFs Asia Pacific Dividend Builder (NYSE Arca: ADIV) – a pair of actively managed dividend growth strategies.

The SmartETFs Dividend Builder ETF is an actively managed dividend growth strategy that seeks dividend-paying companies that have provided an inflation-adjusted cash flow return on investment of at least 10% in each of the last 10 years. The ETF invests in approximately 35 dividend-paying companies globally.

The SmartETFs Asia Pacific Dividend Builder ETF is an actively managed dividend strategy focused on investing in dividend-producing stocks of mature companies in the Asia-Pacific region. The SmartETFs Asia Pacific Dividend Builder targets consistent high return on capital as opposed to focusing solely on the highest yielding dividend payers.

For more news, information, and strategy, visit the Dividend Channel.