When it comes to dividend exchange traded funds, investors are often forced to choose between yield-based strategies or funds that emphasize dividend increase streaks.
However, some dividend ETFs are able to deliver on both fronts while not emphasizing either. Consider the SmartETFs Dividend Builder ETF (DIVS). DIVS is actively managed and isn’t married to either yield weighting or an emphasis on payout increase streaks.
However, as an active fund, DIVS can integrate both concepts, and in the current market environment, that can be advantageous for investors.
“Safety is key. There’s no point in clipping the dividend if the stock falls off a cliff at the same time,” reported Scott Schnipper for CNBC. “First, Barclays only chose stocks from among those it rates the equivalent of a buy. Then the bank screened for companies whose three-year average dividend yield was more than 3%, and whose dividend yield is expected to grow or at least remain stable through 2023, based on Barclays’ own estimates.”
Indeed, safety is paramount when it comes to dividend investing. While high dividend strategies often sport enticing yields, investors need to be mindful of the fact that stocks with the highest dividend yields can turn out to be dividend offenders via cuts or suspensions.
DIVS significantly reduces that risk because the fund focuses on quality. While it’s possible for a company with quality traits to also reside in high dividend territory, those quality characteristics are often a sign that the firm has the resources to handle current dividend obligations and potentially grow payouts over the long term. That speaks to the advantages of approaching DIVS with a long-term perspective.
“There are times in bear markets when the better part of valor is to collect some income and get paid to wait things out,” according to CNBC. “Dividend investing has paid off on a relative basis this year, outperforming the 17.3% slump in the S&P 500 on a total return basis, including reinvested dividends, through Friday (June 27).”
Cisco Systems (NASDAQ:CSCO), a member of the Dow Jones Industrial Average and one of the old guard technology companies that’s developing a reputation for dividend growth, is an example of a dividend stock that Barclays is bullish on. The networking gear giant is a DIVS holding and accounts for 2.44% of the ETF’s roster as of June 27, according to issuer data.
For more news, information, and strategy, visit the Dividend Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.