Industry Experts on Why Dividend ETFs Should be on Your Radar
For investors looking for cash flow, these are some of the best dividend ETFs to invest in right now, according to CNBC.
“We at CFRA view things from a dividend growth perspective and a dividend yield perspective,” said CFRA’s Todd Rosenbluth, his firm’s senior director of ETF and mutual fund research.
“ETFs tend to be focused on how the company pays a dividend and how that yield is part of the portfolio,” he said. “Dividend growth ETFs are more forward-looking. These are companies with either earnings power to have historically paid a dividend or the earnings power to continue to grow and raise that dividend as opposed to the more defensive-laden dividend-yield ETFs.”
- the ProShares S&P 500 Dividend Aristocrats ETF (NOBL)
- SPDR S&P Dividend ETF (SDY)
“Those look backward at the last 20 to 25 years of companies raising dividends. An ETF like DGRW ... is actually more of a projection,” he said, referencing the WisdomTree U.S. Quality Dividend Growth Fund (DGRW). “That DGRW ETF has more tech exposure than those two other ones,” he said. “Tech as growing, but also the dividend base is growing.”
Rosenbluth believes dividends are coming back into favor for investors. “They’ve been out of favor for the first half of 2020. In July, there were net inflows to these ETFs, probably because companies stopped cutting the dividend the way that they had been since the pandemic first emerged,” he said.
Other financial professionals seem trends emerging in the industry. “You have no yield out there,” said Global X’s Jay Jacobs referring to the bond market. Jacobs is his firm’s head of research and strategy. “The Federal Reserve has lowered the federal funds rate to zero and corporate spreads are trading very tightly.”
“On top of that, you have the retiring baby boomer generation that is looking to transition their portfolios from more of a growth focus to an income focus,” he said. “When you combine those two things and put this huge emphasis on trying to find yield in more narrowly sliced corners of the market, we think equities are a great place to find it.”
“We think there’s certain strategies that can generate very significant yield like covered call strategies, which buy stocks and sell call options on top of it,” Jacobs said. “The area that we’re very bullish on right now is preferred stocks, which have kind of a middle place between bonds and equities. They pay pretty high yields, and these are largely U.S.-based financial firms that are showing ... strength in this environment right now.”