A Yield-Generating ETF That Adapted to Changes in the Dividend Landscape

Dividend ETFs have been a popular play but have quickly soured this year. Nevertheless, there are some alternative dividend strategies that may help investors meet their income needs.

“Many ETFs, Dividend ETFs in particular, have underperformed this year,” David Mazza, Head of ETF Investment Strategy, Beta Solutions at OppenheimerFunds, said at the 2018 Morningstar Investment Conference. “I looked at U.S. equity funds that yield more than the S&P 500, and 84% of those 90 [ETFs] have underperformed, some significantly.”

Previously, in an environment of low interest rates, people piled into alternative yield-generating investments, like dividend stocks, that helped bolster their income portfolios.

Those same popular dividend ETF plays, though, are tilted toward defensive, bond-esque like stocks, such as consumer staples or utilities.

“In the face of rising rates, they tend to do worse,” Mazza said.

Consequently, many dividend investors were burned this year as the play petered out and sectors like consumer staples and utilities began to under perform in light of the Federal Reserve’s tighter monetary policy.