Entering text into the input field will update the search result below

Approaching The Dividend Space

Jul. 12, 2017 3:10 PM ET
Global X ETFs profile picture
Global X ETFs

Despite the Fed’s efforts to raise interest rates, many fixed income investments continue to deliver historically low yields to investors. As a result, investors are increasingly considering alternative sources of income, including strategies that potentially provide higher yield than traditional fixed income investments and those that offer the opportunity for capital appreciation along with income.

One area gaining significant attention from investors is dividend-focused ETFs, which Bloomberg recently estimated has $151 billion in assets under management.1 There are dozens of approaches to dividend investing, but we find that the majority of strategies fall into the following three categories: high dividend, dividend growth, and quality dividend. The table below demonstrates some of the key differences between these strategies, including their primary outcomes.

The chart below demonstrates how indexes representing each dividend strategy compare on key measures: dividend yield3, earnings growth, and profitability (defined as return on equity). As one would expect, the fundamentals for each of these indexes tend to align with their desired outcomes. The high dividend index, for example has the highest yield, while the dividend growth index has the highest earnings growth, and the quality dividend index has the strongest return on equity. Equally as important, however, are the tradeoffs: quality dividends and dividend growth often come at the expense of yield and vice versa.

These dividend strategies (represented by the indexes mentioned in the italics above) also tend to exhibit certain sector biases, as illustrated in the chart below. Differences in sector weights can present distinct return drivers and risks for each strategy. The high dividend strategy favors sectors with low valuations (like Energy and Financials) and sectors that distribute a high percentage of their cash flows (like Utilities). The dividend growth strategy, on the other hand, favors historically low-dividend paying sectors like Health Care and Information Technology, which should have a greater capacity to increase dividends because of

This article was written by

Global X ETFs profile picture
Founded in 2008, Global X is a sponsor of exchange-traded funds (ETFs). We are distinguished by our Thematic Growth, Income, and International ETFs. Explore our insights on the trends and themes shaping global markets – from technology to commodities to emerging economies – at globalxfunds.com/research. Global X ETFs is a member of the Mirae Asset Global Investments Group. Important disclosures: globalxfunds.com/privacy

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.