Ahead of the Federal Reserve’s September interest rate decision, it seems more investors are starting to pay attention to dividend stocks.
Paul Baiocchi of SS&C ALPS Advisors thinks this is a sound strategy because he believes the Fed will ease interest rates.
“Investors are moving away from money markets, into fixed income, and toward dividends, but more importantly toward leveraged companies that may be rewarded by a falling interest rate environment,” the chief ETF strategist told CNBC’s “ETF Edge” this week.
ALPS is the issuer of several dividend exchange-traded funds, including ALPS O’Shares U.S. Quality Dividend ETF (OUSA) and its counterparts, ALPS O’Shares U.S. Small Cap Quality Dividend ETF (OUSM).
relative to S&P 500 IndexBoth Dividend ETFs Are Overweight health care, financial condition and Industrial productsAccording to Baocci. ETFs exclude vitality, real estate and Material. He calls these groups the three most volatile industries in the market.
“Not only do prices fluctuate, but so do the fundamentals of these industries,” Baiocchi said.
He explained that such volatility would defeat the goal of OUSA and OUSM, which is to avoid a retracement.
“You’re looking for dividends as part of the methodology, but you’re looking for durable dividends, dividends that have been growing, that are well supported by fundamentals,” Baiocchi said.
Mike Akins, founding partner at ETF Action, views OUSA and OUSM as defensive plays because these stocks typically have clean balance sheets.
He also noted that the dividend category within ETFs is growing in popularity.
“I don’t have a crystal ball to explain why dividends are so popular,” Akins said. “I think people view it as paying dividends, and the company’s balance sheet has had a sense of viability over the years.
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