Low government debt yields are forcing investors to turn to other means for yield, such as dividend-focused ETFs like the Invesco Dividend Achievers ETF (PFM).
PFM doesn’t merely seek funds that offer the best dividend yields. It combs through a vast universe of stocks in order to find overachievers that have sustained their dividends over an extended period of time.
PFM seeks to mimic the NASDAQ U.S. Broad Dividend Achievers Index. That index mandates that member firms have dividend increase streaks spanning at least 10 years, which makes it a very discerning fund.
“PFM’s inclusion requirements are particularly tough; the underlying index consists of companies that have increased their annual dividend for ten or more consecutive fiscal years,” an ETF Database analysis said. “As such, PFM may be a useful tool for investors looking to construct a long-term portfolio that maximizes the current return generated by the equity component, and may also be appealing to those looking to make a shorter-term tilt towards value stocks.”
A Play on Value
When you pop the hood of PFM, you’ll see over 75% of its holdings in large-cap stocks. The tilt is towards value-oriented equities that can withstand a market downturn while capturing upside when markets turn green.
“Value stocks are known for their lower than average price-to-earnings and price-to-book ratios, but investors should also note their lower than average sales and earnings growth rates,” an Entrepreneur.com article explained. “Considering long-term performance, value stocks have outperformed growth stocks in almost all markets; however, they are more likely to underperform growth stocks in strong bull markets.”
With over 350 holdings, PFM also helps to minimize concentration risk. This is particularly beneficial when markets have been fluxing up and down as they’ve done recently.
That’s not to say that PFM will mute volatility completely. Investors must have a middle-of-the-road tolerance for risk when considering PFM.
“The ETF has added about 13.76% so far this year and it’s up approximately 20.62% in the last one year (as of 10/06/2021),” the article added further. “In the past 52-week period, it has traded between $29.52 and $38. The ETF has a beta of 0.85 and standard deviation of 20.27% for the trailing three-year period, making it a medium risk choice in the space. With about 352 holdings, it effectively diversifies company-specific risk.”
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