Fight Back Negative Yields with Dividend ETFs

As investors continue to swallow up bonds faster than a thirsty camel in the desert sun, it’s been putting downward pressure Treasury yields amid the scramble for safe-haven assets. However, one way to combat negative yields is by adding more dividend-yielding equities via exchange-traded funds (ETFs).

Whether it’s the short or long end of the yield curve, some analysts are suggesting dividend-yielding stocks as a better option.

“The outlook is much better for stocks than it is for long-term Treasurys right now,” Bespoke co-founder Paul Hickey told CNBC. “For an investor looking to hold something for the long term, it makes equities relatively attractive.”

For the first time since March 2009, the benchmark U.S. 30-year yield dropped below the S&P 500′s dividend yield on Tuesday.

“The takeaway is, if you can get an annual yield from a company that’s going to pay you more than the 30-year Treasury and the company has a history of raising its dividend, for the long term, it’s a better alternative than a Treasury,” Hickey said.

The U.S.-China trade wars have been responsible for much of the sell-offs in equities. Since bond prices move conversely to yields, investors’ demands for safer government debt has been contributing to the downward slide in Treasury yields.

That’s also brought forth fears of an inverted yield curve—a solid recession indicator. Per a report by CNBC, “ The 30-year bond yielded 1.961%, and was poised to close below the 3-month bill yield for the first time since 2007. This rare phenomenon is called a yield-curve inversion and is widely feared by investors because it has preceded previous recessions. The 3-month Treasury bill rate also traded higher than the 30-year bond yield.”

Dividend ETF Opportunities

One ETF to consider is the FlexShares Quality Dividend Dynamic Index Fund (NYSEArca: QDYN). QDYN’s underlying index targets management efficiency or a quantitative evaluation of a firm’s deployment of capital and its financing decisions. By using a management efficiency screen, the index can screen out firms that aggressively pursue capital expenditures and additional financing, which typically lose flexibility in both advantageous and challenging partitions of the market cycle.

Another option is the ProShares S&P 500 Aristocrats ETF (CBOE: NOBL), should be an area of emphasis for income investors. NOBL tracks the S&P 500 Dividend Aristocrats Index, targets the cream of the crop, only selecting components that have increased their dividends for at least 25 consecutive years. Consequently, investors are left with a portfolio of high-quality, sustainable dividend payers.

For more market trends, visit ETF Trends.