As the Federal Reserve’s interest rate decision in September approaches, more investors are shifting their focus toward dividend stocks. Paul Baiocchi of SS&C ALPS Advisors believes this strategy is sound, particularly with the Fed likely to ease rates.
Baiocchi, the chief ETF strategist, noted, “Investors are moving back toward dividends out of money markets, out of fixed income, but also importantly toward leveraged companies that might be rewarded by a declining interest rate environment.” ALPS, known for its dividend-focused exchange-traded funds, offers the ALPS O’Shares U.S. Quality Dividend ETF (OUSA) and its counterpart, the ALPS O’Shares U.S. Small-Cap Quality Dividend ETF (OUSM).
A Defensive Approach
Relative to the S&P 500, both ETFs are overweight in sectors like health care, financials, and industrials, which Baiocchi views as more stable. They intentionally exclude more volatile sectors such as energy, real estate, and materials. “Not only do you have price volatility, but you have fundamental volatility in those sectors,” Baiocchi explained.
The goal of these dividend ETFs is to provide drawdown avoidance, focusing on durable dividends, have been growing, and are well supported by fundamentals.
The Popularity of Dividend ETFs
Mike Akins, founding partner of ETF Action, also sees OUSA and OUSM as defensive strategies, citing their focus on stocks with clean balance sheets. Akins highlights the growing popularity of the dividend category within ETFs, noting, “I think people look at it as if you’re paying a dividend, and you have for years, there is a sense of viability to that company’s balance sheet.”
As investors continue to seek stability in an uncertain economic environment, dividend stocks remain a favored choice for those looking to navigate potential market volatility.
