With quality taking on added importance for dividend investors in 2020 and talks of value stocks gaining steam mounting, the FlexShares Quality Dividend Defensive Index Fund (NYSEArca: QDEF) is one ETF that could soon enter the limelight.
The steady income/value combination offered by QDEF could be alluring as some market observers wager value stocks are on the mend and as investors search for dividend names that aren’t like to cut or suspend payouts.
“Value stocks typically get put in the value bucket because they are cheap, relatively speaking. The Russell 1000 Value index includes the stocks with the lowest price-to-book value ratios as well as lowest expected growth,” reports Al Root for Barron’s.
QDEF Is Relevant Today
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 their dividend quality indexing methodology.
“Steep declines do, in some instances, create an opportunity. A few investing pros are starting to look again at value stocks, believing value can outperform growth coming out of the economic contraction,” according to Barron’s.
That along with value being as cheap as it’s ever been against growth are relevant to QDEF investors because the fund features a value tilt. Plus, the fund can help investors avoid dividend offenders.
Cash flow provides a better understanding of liquidity levels for a company. A firm that does not meet its debt obligations and day-to-day liquidity needs are likely to be poorly positioned to take advantage of future opportunities or have a financial cushion during downturns.
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.
A post-coronavirus world could reward value, “especially if they believe an economic turn is coming during the second and third quarters of 2020. As restrictions around the globe start to be lifted, value stocks could have their day,” notes Barron’s.
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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.