As many investment disclosures say, past performance does not necessarily guarantee future results, which is why dividend assets like the SmartETFs Dividend Builder ETF (DIVS) are useful for getting back to the fundamentals.
In a time when inflationary pressures have been putting markets in a spin cycle of volatility, getting quality exposure to equities is a must. The markets has focused on value over growth so far in 2021, as seen in the S&P 500 growth and value indices (though the gap is narrowing as of late).
Getting quality exposure can also apply to dividends. Not only does DIVS seek out dividend-paying stocks, its strategy takes the game to another level by looking for dividend growth opportunities—dividends that can not only sustain themselves over time, but also grow themselves.
“We seek to purchase shares at a time when target companies are trading at the low end of their peers, low end of their history, and low end of their industry,” the Smart ETFs website said. “All of this is meant to produce a portfolio of dividend paying companies that has the potential to be able to grow their dividends consistently over time.”
DIVS 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.
Per the fund description, the SmartETFs Dividend Builder ETF seeks a moderate level of current income and consistent dividend growth at a rate that exceeds inflation by targeting quality companies at attractive valuations.
Inflation-Hedging Potential
Another advantage of DIVS is its ability to be an inflation edge should the Federal Reserve decide to raise rates sooner than expected. As the Smart ETFs website notes, “dividends can grow over time and historically have grown at a rate that exceeds the rate.”
In the meantime, it appears inflation fears may be dissipating from the capital markets. Should that change, DIVS has investors covered.
“To us, this signals that markets are starting to give up on the idea of structurally higher US inflation,” DataTrek Research co-founder Nick Colas wrote. “Looking into the back half of 2021, this may well be the single most important data point to watch.”
For more news, information, and strategy, visit the Dividend Channel.