Dismal data confirm this is a trying time to be a dividend investor, but those disappointments spotlight the benefits of the right strategies, including the FlexShares Quality Dividend Defensive Index Fund (NYSEArca: QDEF).
“The net change in Q2 payouts, or the difference between increases and decreases, for all domestic common stocks registered a decline of $42.5 billion from a year earlier, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices,” reports Jeff Cox for CNBC. “That was the biggest drop since the $43.8 billion decreases in the first quarter of 2009 as the economy was escaping the Great Recession, and follows a $5.5 billion decline in the first quarter of this year.”
QDEF offers dividend growth potential and security due to FlexShares’ proprietary dividend quality scoring methodology.
The Dividend Quality Score process is designed to maximize quality and yield while putting several diversification controls into effect through its selection and weighting process. FlexShares’ multi-faceted dividend quality score examines companies based on three factors when determining its dividend quality indexing methodology.
Right Time for Quality
“Measuring a company’s core financial health makes it possible to evaluate whether it may increase (or need to decrease) its future dividends. With this approach, the reliance on publicly available financial data means new dividend payers can be evaluated similarly to stocks that have paid dividends for decades. By using several lenses to evaluate financial health, an investor can gain a strong sense of how well-positioned a dividend-paying company is for success, and how protected future dividends are under current market and economic environments,” according to FlexShares.
FlexShares’ quality dividend indexing methodology 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.
“There were massive dividend suspensions in Q2 2020 as companies had no time to ride out the virus, as sales were cut off and positive cash-flow turned to burn-rate analysis,” said Silverblatt, reports CNBC.
QDEF holds 152 stocks, more than 37% of which hail from the technology and healthcare sectors – two groups that are actually growing, not cutting, dividends this year.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.