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Should You Turn to Dividend ETFs Given Fed Uncertainty?

Even though most people expect the Federal Reserve to leave interest rates unchanged this week, there remains much uncertainty for the rest of the year. Fed watchers will be looking for signals about whether rates will remain steady into 2024 or if one or two hikes might occur. 

Given the unknowns, some advisors might look to dividend equity ETF strategies. While dividend payments can be adjusted, a portfolio of dividend-paying stocks benefits from diversification, offering relatively stable income.  

Learn From ETF Industry Experts 

During this week’s VettaFi Equity Symposium, I’m going to be moderating a discussion at 1205pm ET about Dividend Strategies in a Shifting Interest Rate Landscape. While the two-plus hour virtual event starts at 11am, I know you will enjoy this session. One of my panelists will be Todd Mathias, head of US ETF product strategy & development of Franklin Templeton. Franklin offers a suite of index-based dividend ETFs including the Franklin U.S. Core Dividend Tilt Index ETF (UDIV) and the Franklin US Low Volatility High Dividend ETF (LVHD). 

UDIV is dividend-tilted version of a broad US equity ETF. The fund has 31% in information technology stocks, 12% in health care and 11% in financials. Apple, Johnson & Johnson, and Microsoft are some of UDIV’s top positions. 

Meanwhile, LVHD is built using price and earnings volatility as well as dividend sustainability screens. Utilities (21%), consumer staples (20%), and real estate (14%) are the sectors most represented. Exelon, PepsiCo, and Southern Company are some of its top positions. 

A Dividend Fund Enhanced by Options 

Chistian Magoon, CEO of Amplify ETFs, will join Mathias and I on Thursday at 12:05pm ET. The Amplify CWP Enhanced Dividend Income ETF (DIVO) is different than UDIV and LVHD. DIVO is actively managed and provides additional income beyond dividend payments via selective purchases of call options.  

DIVO also has only 25 holdings, far less than UDIV’s 290 and LVHD’s 126. Stocks are chosen with a strong emphasis on owning high-quality, large-cap companies with historical dividend and earnings growth, Chevron, Goldman Sachs, McDonalds’s, Procter & Gamble, and Visa are some of its top-10 holdings. 

Both Amplify and Franklin Templeton further offer strategies that own international dividend-paying securities. 

Advisors Use Dividend Strategies Differently 

At VettaFi, we find advisors turn to dividend ETFs for a variety of reasons. For some, it is to serve as bond alternative given the uncertainty in the fixed income market. For others, the appeal of dividends is to reduce volatility. Still others are simply looking for total return potential or equity income generation. I’m excited for Thursday’s discussion, to help them understand what ETFs can support their objectives. 

Register for the Equity Symposium at the ETF Trends site and earn continuing education credits. In addition to this session, you will hear from active managers from Engine 1, Fidelity, Gabelli, Goldman Sachs, and Harbor Capital about their best equity ideas heading into 2024.  

For more news, information, and analysis, visit VettaFi | ETF Trends

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