There’s been lots of dividend doomsday discuss on Wall Road this earnings season.
As of Monday, roughly 1 / 4 of firms within the S&P 500 had suspended sharing steering for future quarters, with not less than 30 chopping or pausing dividend payouts in an effort to stem losses tied to the coronavirus pandemic.
Some have puzzled how a wave of dividend cuts might have an effect on dividend-based exchange-traded funds, however ETF analysts say the harm will probably be restricted.
“I think dividend increases or at least dividend consistency is a pretty good quality proxy,” Dave Nadig, chief funding officer and director of analysis at ETF Developments, informed CNBC’s “ETF Edge” on Monday.
Nadig identified that Apple, Johnson & Johnson, Costco and Newmont Mining all elevated their dividends this quarter, which he attributed each to the businesses’ robust money positions and “management’s confidence in their ability to weather this storm.”
“The key difference here is between ETFs that focus on dividend growth and those that focus on high yield.”
Simeon Hyman
World Funding Strategist, ProShares
Simeon Hyman, world funding strategist at ProShares and the person behind the ProShares S&P 500 Dividend Aristocrats ETF (NOBL), mentioned buyers ought to pay attention to an essential distinction within the dividend ETFs available on the market.
“The key difference here is between ETFs that focus on dividend growth and those that focus on high yield,” Hyman mentioned in the identical “ETF Edge” interview.
“NOBL is absolutely in the dividend growth camp,” he mentioned. “And the rules for inclusion of the index — we follow the S&P 500 Dividend Aristocrat index — is 25 years of uninterrupted dividend increases and then the portfolio is equally weighted.”
Hyman added that half of NOBL’s holdings are within the prime quintile of the S&P 500 by credit standing, calling it “a very high-quality portfolio.” By comparability, solely 10-15% of the shares within the iShares Select Dividend ETF (DVY), a extra excessive yield-focused fund, are in that higher quintile, he mentioned.
“So, that’s really important, because what we’ve seen is the high yielders with the lower credit ratings have actually underperformed in this downturn even though interest rates came down, which should’ve helped them out a little bit,” Hyman mentioned.
“I think that portfolio will continue to be a bit of a ‘winners in this market’ portfolio.”
Dave Nadig
Chief Funding Officer and Director of Analysis, ETF Developments
Nadig of ETF Developments mentioned he would not be stunned to see funds like NOBL proceed to win despite potential structural modifications.
“I would not be surprised to see some shifts, even in something like NOBL, because not every one of those holdings is going to be able to keep this up,” Nadig mentioned. “But regardless, I think that portfolio will continue to be a bit of a ‘winners in this market’ portfolio because it is that proxy quality. So, I agree: I think it’s a terrible time to be chasing yield, but it’s a great time to be trying to find quality, cash-flow-positive companies.”
And even when some firms get minimize from NOBL for failing to maintain tempo with their dividend progress, Hyman mentioned the cuts can be in buyers’ finest pursuits.
“If there is a name cut, you could actually see the dividend go up” as a result of firms that slash their shareholder payouts usually underperform, Hyman mentioned. “If you go back to 2008 and you look at the S&P 500 Dividend Aristocrat Index, it lost names in ’08, but the dividend actually went up.”
If NOBL decides to oust one in every of its held shares, the proceeds will routinely be invested throughout the remainder of its constituents, the strategist mentioned.
NOBL’s prime holdings embody Lowe’s, Franklin Resources, Roper Technologies and T. Rowe Price. It ended buying and selling up almost 2.5% on Friday and is down over 15.5% 12 months to this point.
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May 09, 2020 at 09:04PM
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Dividend payers are still 'winners in this market,' ETF analyst says. Here's why - THE TIMES OF U.S.
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