It’s not a dedicated dividend exchange traded fund, but with payouts growing and the value trade still offering upside potential, the FlexShares US Quality Large Cap Index Fund (QLC) is one attractive income idea.

The $100 million QLC, which turns six years old in September, follows the Northern Trust Quality Large Cap Index. That benchmark is a basket of domestic large cap stocks displaying favorable quality traits. With the economic cycle chugging along, QLC could become all the more relevant as market participants look to pair quality with value.

“A strategy that combines value with quality — which are both powerful on their own — may provide smoother overall performance over long periods by avoiding low-quality value stocks that could reduce the portfolio’s returns or increase its volatility,” according to FlexShares research.

Benefits Offered by the QLC ETF

Another perk with QLC is that it is diverse relative to some heavily-concentrated value ETFs. The FlexShares fund holds nearly 170 stocks, according to issuer data. That’s the result of QLC opening its search for value to all sectors. While some competing funds purport to be sector-agnostic, they are often heavily allocated to traditional value groups, such as financial services.

“Strategies that look for value stocks in every sector may help avoid overweights to traditional value sectors and provide better exposure to the value factor across the broader market. Likewise, holding a larger number of stocks may help reduce the idiosyncratic risk that may arise from concentrated value portfolios that only hold 30–50 stocks,” adds FlexShares.

Due to the fact that it’s not bound by traditional value methodology and owing to the inclusion of the quality factor, QLC offers investors a much different look than old-guard value ETFs. For example, the FlexShares ETF devotes just 12.12% of its weight to financial services stocks, but technology – a sector often overlooked in many value ETFs – accounts for over 30% of the fund’s weight.

Combine that with an almost 14% weight to healthcare and QLC’s credibility as a dividend destination is enhanced because those two sectors are among the top dividend growers in the S&P 500. Additionally, their payouts aren’t tethered to permission from the Federal Reserve (bank stocks), commodities prices (energy, materials), and other macro forces.

QLC currently sports a dividend yield of 1.16%, which implies plenty of room for payout growth going forward and could be taken as a sign that its components are not financially strained by dividend obligations.

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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.