Dividend stocks and ETFs faced plenty of challenges in 2018 as the Federal Reserve boosted interest rates four times, but S&P 500 dividend growth was still impressive and some dividend strategies performed less poorly than the broader market.
The VanEck Vectors Morningstar Durable Dividend ETF (DURA), a newer dividend exchange traded fund which debuted last October, can help investors access a basket of high-yield dividend payers with value traits and healthy balance sheets.
DURA seeks to provide exposure to high dividend yielding U.S. companies with strong financial health and attractive valuations, according to Morningstar. DURA seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Morningstar® US Dividend Valuation IndexSM. The Index leverages Morningstar’s forward-looking fair value assessments as well as its proprietary quantitative Distance to Default score, which helps target financially strong companies with a higher probability of sustaining dividend payments.
Not Just Short-Term
Dividends have long been the primary way businesses distribute cash to shareholders, and investors find appeal in their income stream and contribution to long-term total return from equity markets,” said VanEck in a recent note. “Sometimes, however, investors can be attracted to a dividend-paying stock with seemingly attractive yields, only for the company to experience financial distress, dividend cuts, and a falling share price—in other words, a “dividend trap.’”
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Investors should be careful of chasing short-term yield.
“Chasing short-term yield alone may come at the expense of long-term total return. Cautionary tales from recent years include financials and housing-related stocks in 2007-2009 and energy and materials stocks in 2014-2015,” according to VanEck.
DURA holds nearly 90 stocks and has a distribution yield of 2.56%. The fund allocates over 41% of its combined weight to healthcare and consumer staples names. The energy and technology sectors combine for 23.30 percent of the fund’s roster.
Investors have added $2.47 million to DURA this year.
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