With S&P 500 companies on a five-year run of allocating more capital to share repurchases than to dividends and with low-yielding or non-payout technology stocks leading the large-cap space to the upside, it sure feels as though dividend investing is no longer fashionable.
A case can be made that dividend investing is still highly relevant, though it’s not commanding the attention it deserves. Said another way, opportunity abounds with ETFs such as the ALPS O’Shares U.S. Quality Dividend ETF (OUSA ).
The case for OUSA is supported by multiple factors. These include the need to augment growth-heavy portfolios, momentum for the hard assets low obsolescence (HALO) trade, the important role dividends can play in reducing volatility and dividend growth’s value in fighting inflation.
“There are a couple of reasons why dividend-paying stocks can be particularly useful,” according to Merrill, a unit of Bank of America. “First, the income they provide can help investors meet liquidity needs. And second, dividend-focused investing has historically demonstrated the ability to help lower volatility and buffer losses during market drawdowns.”
OUSA Offers Dividend Consistency
Dividend growth is one of several metrics employed by OUSA. That implies long-term investors can access payout consistency and growth with this ETF. As experienced equity income investors know, dependability is vital when it comes to dividend investing.
“Companies that have consistently increased their dividends tend to be more stable, higher-quality businesses, which historically have weathered downturns and are more likely to have the ability to pay dividends consistently,” noted Kirsten Cabacungan, investment strategist in the Chief Investment Office for Merrill and Bank of America Private Bank.
Plenty of OUSA holdings have payout increase streaks that can be measured in years or even decades. However, OUSA is versatile in that it can also include some “next-gen” or newer dividend payers. For example, Alphabet (GOOGL) and Apple (AAPL) are the ETF’s largest and third-largest holdings, respectively.
Bottom line: dividends and OUSA are potentially appealing to a broad swath of investors, particularly at a time when inflation remains stubbornly high.
“Dividend-paying investments can play two key roles: providing investors with income to help meet immediate cash needs — something that retirees might increasingly look to them for — and offering potential downside defense during market sell-offs,” concluded Merrill.
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