Investors have plowed funds back into dividend paying offerings over the last two weeks ended this past Wednesday, and it’s easy to see why — the dual threat of inflation and not one but three rate hikes on the agenda this year has markets spooked. Current income can provide cover for investors, with a high dividend ETF pair like the Franklin International Core Dividend Tilt Index ETF (DIVI ) and the Franklin U.S. Core Dividend Tilt Index ETF (UDIV ) perhaps being one way to find an edge over other dividend funds.
Shares of companies with some of the biggest dividend offerings outperformed the market writ large last year as their durability proved a powerful tool amid geopolitical, energy, and inflationary strife. For those who still want a slice of equity exposure, too, the high dividend ETF duo offers strong exposure to bigger and perhaps safer names like Apple, Inc. (AAPL) and Microsoft (MSFT).
What may be even more impactful, though, is having an investment approach that can capably identify firms which expect strong future dividends, as some names are looking at cutting their stockholder payouts this year. Intel (INTC) announced it was cutting its dividend this week, and some other notable names may be considering the same.
Both DIVI and UDIV create an index from a parent index universe with a dividend tilt, with both strategies aiming to optimize for the strongest dividend yields based on the trailing 12-month dividend yields. DIVI aims to see higher dividend yields than its parent index, the Morningstar Developed Markets ex-North America Target Market Exposure Index, while UDIV looks to limit tracking error to the parent index and is reconstituted quarterly for optimization.
DIVI has added $69 million in net inflows over the last month, and has outperformed its ETF Database Category Average and its Factset Segment Average YTD, returning 6.4% with a 3.4% annual dividend yield. DIVI charges nine basis points. Meanwhile, UDIV has seen returns of 5.2% YTD, with a 4% dividend yield over the last 30 days.
LVHD, another dividend ETF from Franklin Templeton, just hit $1 billion in AUM, with dividends just one of a few key themes for the firm this year according to one of its ETF leaders. Emerging markets, too, offer an interesting take on dividends.
A high dividend ETF could provide some strong cover in an uncertain year. For those investors looking for current income right now, DIVI and UDIV may be strategies worth watching in the weeks ahead as markets wait for the other shoe to drop.
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