In light of the upcoming Federal Reserve’s interest rate decision in September, more investors are turning their attention to dividend stocks. Paul Baiocchi from SS&C ALPS Advisors believes this is a wise move given his prediction of the Fed easing rates. According to Baiocchi, investors are moving away from money markets and fixed income towards dividend-paying companies, especially those that could benefit from a decreasing interest rate environment.
ALPS, the issuer of various dividend exchange-traded funds (ETFs), offers options such as the ALPS O’Shares U.S. Quality Dividend ETF (OUSA) and the ALPS O’Shares U.S. Small-Cap Quality Dividend ETF (OUSM). Baiocchi explains that in comparison to the S&P 500, both these dividend ETFs have a heavier allocation towards sectors like health care, financials, and industrials, while excluding sectors like energy, real estate, and materials. He notes that these excluded sectors are considered highly volatile and could pose a threat to the funds’ goal of drawdown avoidance.
Baiocchi emphasizes the importance of investing in dividends that are not only part of the methodology but also durable and supported by strong fundamentals. The focus is on dividends that have a history of growth and stability. This strategy ensures that investors are not only receiving dividends but that these dividends are sustainable in the long run.
Mike Akins, the founding partner of ETF Action, sees ETFs like OUSA and OUSM as defensive strategies due to the companies’ clean balance sheets. He notes that the dividend category in ETFs has been gaining popularity, indicating a broader trend towards dividend stocks in the market. Despite the surge in interest, Akins does not have a definitive explanation for the current popularity of dividends.
The shift towards dividend stocks in anticipation of the upcoming Federal Reserve’s interest rate decision reflects investors’ desire for stability and income generation. By focusing on quality dividend ETFs with a strong emphasis on durable dividends, investors are aligning themselves with defensive strategies that could potentially weather market volatility. As the interest in dividend stocks continues to rise, it is crucial for investors to carefully assess their investment options and ensure that they are making informed decisions based on long-term financial goals.