Arguably, dividends never really go out of style, but dividend stocks do encounter rough patches as was the case earlier this year. Good news: payouts are back in style setting up well for the FlexShares Quality Dividend Defensive Index Fund (NYSEArca: QDEF) in 2021.
QDEF’s underlying index is designed to reflect the performance of a selection of companies that, in aggregate, possess greater financial strength and stability characteristics relative to the Northern Trust 1250 Index, a float-adjusted market-capitalization weighted index of U.S. domiciled large- and mid-capitalization companies. The fund will invest at least 80% of its total assets (exclusive of collateral held from securities lending) in the securities of the underlying index.
With defensive, quality traits, QDEF is an ideal choice for risk-averse investors or retirees seeking equity income.
“With dividends, though, you can have your cake and eat it, too. As long as you’ve invested in very healthy and reliable dividend-paying stocks, you can be assured of regular income without having to sell any shares — and when you pass away, those shares will remain for your heir,” reports Tuscon.com.
Bank on QDEF’s Consistency
QDEF’s emphasis on dividend growers is particularly relevant in today’s market environment. Dividend-growing companies are also high-quality names. Steady dividend payouts have also helped produce improved risked-adjusted returns over time.
Dividend growth can also be a great inflation fighter.
“Over many years, inflation has averaged around 3% annually, though there have been years of very high inflation and some very low-inflation years, as well. A 3% rate can cut the buying power of your money in half over about 20 years, which might make life difficult late in your retirement. But if your dividend income is increasing at a fast rate than inflation, those payouts will actually boost your buying power over time,” adds Tuscon.com.
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.
Dividends have added significantly to returns over time, contributing approximately 32% of the S&P 500’s total return since 1960. During the return-challenged 1970s, dividends made up nearly three-quarters of S&P 500 returns – while investors earned a cumulative total return of 77% from the S&P 500 in that decade, 60% of that 77% was from dividends.
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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.