September has a well-earned reputation for being unkind to equities. The ninth month of the year is also often not the best time to own gold, but that doesn’t mean investors need to run for the hills.
Investors can lean on familiar avenues to make it through what could be a rough ninth month of the year, and those options include dividend stocks and exchange traded funds. In fact, some experts are advocating in favor of equity income exposure this month.
“Historically, September has been the month with a distinct and statistically significant seasonal bias. Unfortunately, that bias is negative. Going back to the 1920s, September has been the most negative month of the year, a distinction that has held up in recent times,” according to BlackRock research.
Alone, seasonality is not the end-all and be-all of trading decisions, but market trends often repeat over time. With that in mind, the case of volatility-reducing strategies, of which dividends are one, grows this month because stocks are limping into September on a downbeat note.
“To make matters worse, the negative seasonality tends to be more pronounced when momentum is decidedly negative, as it is today. Since 1987, when the market is down at least 10% during the previous 12 months, the average monthly return in September is -6%,” adds BlackRock.
On the other hand, dividend stocks and ETFs are outperforming the broader market this year, with many doing so with less volatility. Add to that, data confirm payouts are growing in the U.S. and around the world, underscoring the case for dividend ETFs as inflation-fighting tools.
“Unfortunately, while inflation may have peaked, it will take time for it to fall back into the Federal Reserve’s comfort zone. At the same time, parts of the economy, notably the labor market, remain resilient. All of this suggests the market may be too optimistic that the Fed will pivot and cut rates in 2023. Instead, near-term financial conditions are likely to tighten, creating a headwind for the economy and stock valuations,” notes BlackRock.
Among the dividend ETFs that can help investors navigate what could be a tricky September are the SmartETFs Dividend Builder ETF (DIVS) and the SmartETFs Asia Pacific Dividend Builder ETF (ADIV). Both are actively managed, and both emphasize exposure to quality companies.
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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.