With some market observers saying the worst is over for this year’s dividend duress, the Principal Active Global Dividend Income ETF (CBOE: GDVD) is an ETF to consider.
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.
For income-starved investors, GDVD is a consideration today as the dividend outlook improves. Low bond yields only bolster the case for Principal’s actively managed GDVD.
“At the end of July, a 10-year U.S. Treasury yield of 0.55% compared to an S&P 500 dividend yield near 2%. Not only are stocks yielding more, but equity income has the potential to grow over time while bonds (true to their “fixed income” label) pay fixed coupons until maturity,” according to BlackRock research.
The Case for GDVD
The need for global income is more readily apparent as U.S. companies are slashing their dividends in order to preserve cash thanks to the coronavirus pandemic. As more companies are looking to stymie the effects of the pandemic by cutting dividends, investors can look to global yield opportunities. Seeking fixed income opportunities around the globe could help yield-hungry investors satiate their appetites while sectors like manufacturing return to normal.
“Dividends do a lot of the heavy lifting in terms of the contribution to a stock’s total return across time. Over the past 30 years, reinvested dividends accounted for more than 30% of global stock returns,” notes BlackRock.
GDVD holds 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.
“Companies with a record of paying and growing their dividend tend to be better managed. Their CEOs do not want to cut the dividend, so they invest more conservatively in cap ex and M&A and run a more frugal balance sheet,” says BlackRock. “These ‘dividend growers,’ on average, also tend to be less volatile and historically have been able to deliver strong relative performance in all types of markets.”
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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.