During times of elevated market volatility, dividend stocks and ETFs can help investors reduce some of that turbulence. That is particularly true today and with bond yields slumping, dividend ETFs, such as the FlexShares Quality Dividend Index Fund (NYSEArca: QDF), take on added importance.
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 ETFs.
The $1.57 billion QDF has a trailing 12-month yield of nearly 3%, which is very attractive relative to the yields on the S&P 500 and 10-year Treasuries. More importantly, QDF and other FlexShares dividend ETFs focus on quality.
The depressed yields have set the stage for many income-minded investors to branch out in search of higher dividend-paying stocks. History has shown that attractive dividend stocks have been favored in low-rate environments as many turned to higher yields.
QDF “emphasizes quality, which is pivotal in identifying securities with the potential for long-term dividend growth. QDF’s methodology features a dividend quality scoring system aimed at identifying companies with strong balance sheets,” according to InvestorPlace.
QDF’s methodology goes beyond prosaic measures, such as dividend increase streaks. In fact, it can be argued that the FlexShares fund is far more stringent when it comes to sourcing reliable dividend growth.
“Additionally, QDF employs a management efficiency scoring system in an effort to highlight management teams that are committed to maintaining sound balance sheets and doling shareholder rewards,” reports InvestorPlace.
Global uncertainty, mainly due to the ongoing U.S.-China trade war and its effects on the world economy, has pushed more investors into safe-haven government bonds and sent yields reeling. Yields on benchmark 10-year Treasury bonds were hovering around 1.639% on Monday, the lowest level since 2016.
QDF’s underlying benchmark targets management efficiency or 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.
For more information on dividend-generating ideas, visit our dividend ETFs category.