Income-minded investors have looked into high dividend-paying stocks to generate greater yields in an extended low-rate environment and capitalize on strength in the equities market, but they come with risks. Nevertheless, there are some high dividend exchange traded fund strategies that specifically target low-volatility names to help diminish downside risks.
High dividend-paying companies are typically associated with heightened risk as some are concerned that these companies may find it hard to maintain their elevated levels of dividend handouts. However, a low-volatility theme may help diminish the oscillations associated with this riskier segment of the market.
For instance, investors may consider smart beta plays like the Legg Mason Low-Volatility High-Dividend ETF (NASDAQ: LVHD). The low volatility high dividend ETF should help investors who are seeking new sources of yield in a changing market environment. The funds focus on companies with relatively high yield and low price and earnings volatility, and the funds also targets profitable companies. LVHD shows an attractive 3.50% 12-month yield.
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Additionally, for those interested in more international exposure, the Legg Mason International Low Volatility High Dividend ETF (BATS: LVHI) tries to reflect the performance of the QS International Low Volatility High Dividend Hedged Index, which provides stable income through investments in stocks of profitable companies in developed markets outside the U.S. with relatively high dividend yields and lower price and earnings volatility while diminishing exposure to exchange-rate fluctuations between the U.S. dollar and other international currencies. LVHI shows a 3.51% 12-month yield.
The profitability screen filters stocks that have been profitable over the last four quarters and are projected to remain profitable over the next four quarters, so companies will have the earnings power to support their dividends.
The volatility measure will look for price volatility based on the past 12 months of daily returns earnings volatility, along with 3 years realized and 2 years projected. Historical data suggest that over the long term, lower volatility stocks offer better risk-adjusted returns than their more volatile counterparts.
“Research has observed a ‘low-volatility anomaly,’ where stocks with lower volatility than the overall market have historically outperformed on risk-adjusted basis over time,” according to Legg Mason.
Financial advisors can also learn more about Legg Mason’s insights at the upcoming virtual conference. On March 14, 2018, ETF Trends will be hosting its annual Virtual Summit, an online virtual conference environment where financial advisors can learn about current ETF issues, hear from industry experts and connect with peers without the burden of cost and traveling.
For more information on dividend-paying stocks, visit our dividend ETFs category.