Quality dividend strategies are receiving renewed focus and multiple ETFs serve as avenues to to dependable dividend payers. The Global X S&P 500 Quality Dividend ETF (Cboe: QDIV) is one of the newer additions to that group, having debuted last July.

The Global X S&P 500 Quality Dividend ETF tries to reflect the performance of the S&P 500 Quality High Dividend Index, which is comprised of the top S&P 500 companies that exhibit high quality and dividend yield characteristics and equally weighted. Each company’s quality score is derived from its return-on-equity, accruals ratio, and financial leverage ratio.

Combining a quality screen with dividend yield, the ETF aims to provide access to companies that are more likely to sustain dividends throughout various economic environments

Dividends are often viewed as a quality trait, but investors looking for credible combinations of dividends and the quality should assess factors beyond pure yield. Those factors include return on equity (ROE) and a company’s ability to sustain and grow payouts.

“While there are a handful of definitions for quality, S&P defines it as a combination of a company’s return on equity (profitability), debt to book value (financial leverage), and its change in net operating assets (accruals ratio),” said Global X in a recent note. “Companies that score well across these three metrics tend to make good use of invested capital, avoid taking on too much risk through borrowing, and generate strong cash flow. As such, these ‘high quality firms’ generally are on more stable footing than ‘low quality firms’, and therefore more resistant to external economic shocks. Research on quality also shows that these high quality firms tend to outperform low quality firms over the long run.”

QDIV ETF Perks

Quality stocks with track records of dividend growth can help investors mitigate some of the impact of increasing margin pressure, should that scenario emerge.

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