As investors try to fill out a diversified investment portfolio, consider quality dividend-generating exchange traded funds that could potentially enhance yield and reduce risk exposure.
For instance, dividend ETF investors who are seeking stability, along with exposure to the growing U.S. markets, should look to quality instead of chasing after yields, including investment options like FlexShares Quality Dividend Index Fund (NYSEArca:QDF), FlexShares Quality Dividend Dynamic Index Fund (NYSEArca:QDYN) and the FlexShares Quality Dividend Defensive Index Fund (NYSEArca:QDEF).
“FlexShares’ [Dividend Quality Score] process is designed to maximize quality and yield while putting several diversification controls into effect. The strategy strives to harness dividend quality and yield through its selection and weighting process. Non-dividend payers are eliminated from the universe of large cap equities, as are the lowest 20 percent of companies in the DQS ranking,” according to a Northern Trust Flexshares note.
FlexShares’ multi-faceted dividend quality score examines companies based on three factors when determining its dividend quality indexing methodology.
Specifically, the smart beta index targets management efficiency or a 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.