“For example, investors seeking a greater-than-average income may choose high dividend yield strategies. But these strategies tend to have significant weightings in sectors that are highly sensitive to interest rate movements, thus introducing interest rate risk into the equity allocation,” said ProShares. “On the other hand, strategies focused on stocks that have grown their dividends consistently (but don’t always have the highest yields) may provide an all-weather dividend solution—one that has the potential to perform well regardless of the direction of rates.”
SMDV allocates almost 31% of its combined weight to financial services and industrial stocks and another 12% to consumer staples names.
“As investors consider dividend strategies, it’s important to note the difference between high dividend yield strategies and dividend growth strategies,” adds ProShares. “While the former may provide the higher income many investors crave, they tend to be sensitive to interest rate movements. The latter, on the other hand, offer all-weather potential, having performed well in a variety of interest rate environments.”
Another advantage of dividends married with small-caps is that small-cap dividend strategies have historically been less volatile than their non-dividend counterparts.
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