This past summer, as investors continued to swallow up bonds faster than a thirsty camel in the desert sun, it put 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).
One such fund to utilize is the Invesco Dow Jones Industrial Average Dividend ETF (NYSEArca: DJD). Whether it’s the short or long end of the yield curve, some analysts are suggesting dividend-yielding stocks as a better option.
DJD seeks to track the investment results of the Dow Jones Industrial Average Yield Weighted. The underlying index is designed to provide exposure to dividend-paying equity securities of companies included in the Dow Jones Industrial Average™, which is a price-weighted index of 30 U.S. companies that meet certain size, listing and liquidity requirements.
“When looking at the above chart, you can see that the DJD is actually outperforming the S&P 500 (SPY), and with a lower P/E ratio as well,” wrote Ortner Capital owner Josh Ortner in Seeking Alpha. “This ETF yields a forward paying dividend of 3.1% compared to the SPY dividend yield of 1.8%. The DJD has a 50% focus on Large Cap Value equities. Some of these value companies include: Dow Inc. (DOW), Caterpillar (CAT), Pfizer (PFE), Exxon Mobil (XOM), Walgreens (WBA), and JP Morgan Chase (JPM).”
“All great blue chip stocks that you could easily own individually in your portfolio for the long-term,” Ortner added. “These blue chip names have much lower P/E ratios when you look at them individually. The DJD has not had an annual loss since it was started in 2016. DJD sports a lower volatility profile of just owning passive indices as well. Instead of doing all this stock picking on your own, let Invesco re-balance this ETF for the small cost of .07%. For seven basis points a year, this is a cheap deal.”
As of Nov. 25, DJD is up 19% according to Yahoo Finance.
Another 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.