A Durable Dividends Strategy for a Low-Yield Environment | ETF Trends

In the face of a prolonged bull market run and an extended lower-for-longer yield environment, quality sources of income may be harder for investors to find—unless they know where to look.

In the upcoming webcast, A Durable Dividends Strategy for a Low-Yield Environment, Dan Lefkovitz, Strategist, Morningstar Indexes; and Brandon Rakszawski, Director, ETF Product Development, VanEck Vectors ETFs, VanEck, will outline opportunities for income generation in a low-yield environment, such as a high-dividend strategy targeting financially healthy companies with attractive valuations.

Specifically, the VanEck Vectors Morningstar Durable Dividend ETF (DURA) 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 the price and yield performance of the Morningstar US Dividend Valuation Index. 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.

Morningstar’s equity research analysts forecast future cash flows well into the future to arrive at a current intrinsic value for a company and will allocate to those companies that have high dividend yield and are trading at attractive prices relative to their fair value. Additionally, Morningstar uses assigns a distance-to-default score to assess and predict the probability of default or bankruptcy for a particular company, which has actually also been a reliable predictor of future dividend cuts.

Dividends have long been the primary way companies dole out cash to shareholders, and investors are attracted to this steady income stream as part of long-term total return from equity markets. 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, or a “dividend trap.’”

With traditional dividend-paying stock strategies, investors may be exposed to unintended risks. For instance, high dividend-yielding companies may be exposed to some perceived risk with equity investment in that company. For consistent dividend payers or dividend growers, investors are relying on historical patterns to repeat themselves in the future, and as we all know, past performance is no guarantee of future results.

Financial advisors who are interested in learning more about a durable dividend strategy can register for the Tuesday, March 3 webcast here.