This Dividend ETF Is Having Its Day

Plenty of dividend exchange traded funds have enjoyed some good times this year, those with an emphasis on quality and dividend growth perhaps more so than other payout strategies.

The O'Shares FTSE U.S. Quality Dividend ETF OUSA is in the latter group and while it may not be beating market this year, its 18.42% year-to-date gain is solid and comes with a lower risk profile than broader market funds. Moreover, OUSA highlights the benefits of quality strategies.

OUSA follows the FTSE USA Qual/Vol/Yield Factor 5% Capped Index, which emphasizes select high quality, low volatility and dividend yield thresholds.

“The high quality and low volatility requirements are designed to reduce exposure to high dividend equities that have experienced large price declines,” according to O'Shares.

Why It's Important

High-yield strategies can tempt, but there are also risks, namely that a stock attains high dividend yields because its price is falling and that could be a precursor to financial strain or negative dividend action. OUSA looks to avoid those situations and with good reasons.

“Profitable dividend paying companies have the ability to maintain and even grow dividend payments to their investors,” according to O'Shares research. “This is demonstrated by the growth in dividends per share paid by the companies in the S&P 500. From 2010 through 2018 the dividends per share paid by the companies in the S&P 500 have more than doubled, a growth rate of nearly 11% per year.”

OUSA's commitment to quality is evident at the holdings level as its top 10 components include Apple Inc. AAPL, Johnson & Johnson JNJ and Pfizer PFE, three of the most cash-rich companies in the U.S.

What's Next

At a time when there has been ample chatter about a value resurgence (growth is still beating value), investors may want to give dividends and OUSA another look because data indicate payouts top the value factor over the longer term.

"Investors often oversimplify the categorization of stocks into growth and value,” notes O'Shares. “Dividends may deserve a core allocation to an equity portfolio, not only for seeking income and risk reduction but for strong performance. Over the past 10 years, dividend stocks have outperformed value and the S&P 500. Additionally, dividends have outperformed value in 1, 3, and 5 year periods as well.

"The hypothetical growth of $10,000 invested over 10 years in dividends results in nearly $40,000. The hypothetical growth of $10,000 invested over 10 years in either value or the S&P 500 all results in under $35,000.”

Related Links:

There's Still Reasons To Love Gold ETFs

A New Way To Invest In Autonomous Vehicles