This Dividend ETF Is On A Tear

Underscoring the point that defensive strategies are working this year, several such exchange traded funds hit all-time highs on Monday.

Some of the defensive ETFs joining the all-time high club were dividend funds, including the O'Shares FTSE U.S. Quality Dividend ETF OUSA.

What Happened

OUSA, which has a dividend yield of 2.8 percent, is higher by nearly 13 percent this year. The fund, the largest ETF in the O'Shares suite, targets the the FTSE USA Qual/Vol/Yield Factor 5% Capped Index.

That benchmark “is designed to measure the performance of publicly-listed large-capitalization and mid-capitalization dividend-paying issuers in the United States that meet certain market capitalization, liquidity, high quality, low volatility and dividend yield thresholds, as determined by FTSE Russell,” according to O'Shares.

Why It's Important

While OUSA is a dividend growth strategy, the fund offers other benefits. Importantly, OUSA's components can maintain and grow their payouts because the fund's sector weights have higher return on assets (ROA) than 10 of the 11 S&P 500 sectors.

Additionally, OUSA's dividend yield is higher than eight of the 11 S&P 500 sectors and the fund's annualized volatility is lower than all but one S&P 500 sector.

Over the past decade, the utilities and consumer staples sectors have been the least volatile groups in the S&P 500. OUSA allocates about 22.4 percent of its weight to those sectors. While investors often conflate dividends with value, dividend stocks have beaten value strategies over the long term.

“Over the past 20 years, dividend stocks have outperformed value, growth and the S&P 500,” according to O'Shares Research. “Additionally, dividends have outperformed value in 1, 3, 5 and 10 year periods as well.”

What's Next

To the point of not confusing dividend and value stocks, the former often trade at premiums to the S&P 500, but valuations on dividend stocks have recently come in a bit.

“For the past five years, dividend stock valuations have been roughly in line with the S&P 500 on average,” according to O'Shares. “Throughout this period that they have traded at a premium as high as 15%. As of January 2019, dividend stocks were approximately 11% cheaper than average.”

Health care and industrial stocks combine for over 28 percent of OUSA's weight. None of the fund's components exceed a weight of 5 percent.

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