As the Federal Reserve’s interest rate decision looms in September, more investors seem to be turning towards dividend stocks. This shift in strategy is fueled by the belief that the Fed will ease rates in the near future. Paul Baiocchi, the chief ETF strategist at SS&C ALPS Advisors, considers this a prudent move. He suggests that investors are moving away from money markets and fixed income, gravitating towards leveraged companies that could benefit from a declining interest rate environment.
Advantages of Dividend ETFs
ALPS is responsible for several dividend exchange-traded funds, including the ALPS O’Shares U.S. Quality Dividend ETF (OUSA) and the ALPS O’Shares U.S. Small-Cap Quality Dividend ETF (OUSM). Compared to the S&P 500, these dividend ETFs are heavier on sectors like health care, financials, and industrials. Baiocchi emphasizes their exclusion of energy, real estate, and materials – sectors he deems as highly volatile in the market. The goal of these ETFs is drawdown avoidance, focusing on dividends that are not only sustainable but have shown consistent growth supported by strong fundamentals.
Mike Akins, the founding partner of ETF Action, views OUSA and OUSM as defensive strategies due to the clean balance sheets of the companies they comprise. He highlights the surging popularity of dividends in ETFs, indicating a growing trend in the market. Despite this, Akins admits not having a definitive explanation for why dividends are currently in high demand among investors.
With the anticipation of the Federal Reserve’s interest rate decision, the focus on dividend stocks continues to escalate among investors. As market conditions become increasingly uncertain, the allure of stable and growing dividends presents itself as a viable strategy for many. By steering clear of volatile sectors and prioritizing companies with robust fundamentals, investors aim to secure their portfolios against potential downturns. The shift towards dividend ETFs reflects a broader trend of seeking defensive positions amidst economic fluctuations. As the future unfolds, the embrace of dividend stocks may prove to be a pivotal move for savvy investors looking to navigate turbulent waters with confidence.