Playing it Safe in Rocky Dividend Climate | ETF Trends

Active management has its benefits and that’s true with dividend equities, particularly at a time when global payouts are under duress. Consider the Principal Active Global Dividend Income ETF (CBOE: GDVD).

GDVD will try to generate current income and long-term growth of income and capital by investing in dividend-paying equity securities. The advisors will utilize quantitative screens and research on an industry and company level to identify and monitor companies it believes have the commitment and capacity to pay dividends.

Data confirm that GDVD could be advantageous for investors looking to avert negative dividend action, of which there’s been plenty this year.

“Global dividend payments plunged $108 billion to $382 billion in the second quarter of the year, fund manager Janus Henderson has calculated, equating to a 22% year-on-year drop which will be the worst since at least 2009,” according to Reuters.

Relevance of GDVD

At a time when U.S. benchmarks are homes to growing numbers of dividend offenders with no relief found in many international indexes, GDVD’s focus on quality on dividend growth matters. After all, many of this year’s dividend cutters are companies with strained balance sheets and previously high yields that ultimately proved too rich.

The fund holds a small-, medium- and large-cap companies in both growth and value styles, along with real estate investment trusts or REITs. The fund will also hold international companies, with at least 40% of net assets in foreign and emerging market securities. GDVD will typically hold investments tied economically to at least three countries outside the U.S.

“All regions saw lower payouts except North America, where Canadian payments proved to be resilient. Worldwide, 27% of firms cut their dividends, while worst affected Europe saw more than half do so and two-thirds of those cancel them outright,” reports Reuters.

GDVD is a focused fund, holding just 62 stocks. Despite that small roster, the Principal ETF is home to some of the world’s largest dividend payers in dollar terms, including Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT) and JPMorgan Chase (NYSE: JPM).

“Some key factors will determine how strong the recovery in dividends will be,” reports Reuters. “The most obvious is the path of the coronavirus, but there is also what U.S. firms do later this year and whether Europe’s banks get the green light early next year to restart their payments.”

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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.