Displaying items by tag: yields

(New York)

One of the biggest surprises of the summer has been the outperformance of dividend stocks. Despite rates and yields rising, dividend stocks have done very well. With that in mind, here is a list of 7 of the best cheap high dividend yield ETFs: iShares Core High Dividend ETF (HVD, 3.51% yield), SPDR Portfolio S&P 500 High Dividend ETF (SPYD, 3.71%), Invesco Dow Jones Industrial Average Dividend ETF (DJD), Invesco S&P 500 Quality ETF (SPHQ, 1.73%), Vanguard High Dividend Yield ETF (VYM, 2.87%), JPMorgan U.S. Dividend ETF (JDIV, 3.76%), Xtrackers MSCI EAFE High Dividend Yield Equity ETF (HDEF).

FINSUM: All of these funds have very low expense ratios, and varying (but generally high yields). If you are looking for dividend income, these are a good place to start. That said, these are non-hedged, so there a good deal of rate risk.

(New York)

The whole market is generally afraid of rising rates. Both in 2015 and 2018, there were significant mini-meltdowns about the prospect of aggressive rate rises. One of the aspects that most worries investors is that higher rates will drive participants out of stocks and into higher-yielding bonds. However, while true in some respects, that narrative is far too simple. Higher rates are a symptom of a healthy and growing economy, which means the business fundamentals driving stocks are getting better, a factor which is likely far more important than incremental changes in rates.

FINSUM: We think there is some wisdom in these words, especially as they perfectly encapsulate what has happened with the market this year.

(New York)

Utilities, telecoms, consumer staples, and REITs, all sectors that should get hurt as rates rise, right? Think again. Dividend stocks are doing well, and telecoms, in particular, look like they have a lot of upside for investors. According to Oppenheimer, the price war in the sector is coming to an end, which means telecoms, which have trailed the market this year, could be in for a good run. Also notable is that the dividend yield spread between AT&T and Verizon is now at its highest ever, with the former at 6% and the latter at 4%.

FINSUM: Favorable bundling and higher per user revenue seem likely. Those drivers, combined with the fact that dividend stocks have a lot of momentum, could mean the sector might strongly outperform the market.

(New York)

One would think that with rates and yields rising, and set to continue doing so, dividend focused stock sectors might be suffering. Yet, the opposite is true in the last month, the biggest gainers in the S&P 500 have been the dividend stalwarts—utilities, consumer staples, and telecoms. The driver of the gains seems to be less about the returns provided by dividends, and more about the fact that these are defensive sectors that can protect against a downturn.

FINSUM: This development is a little confusing (but then again so is the whole market), as the defensive characteristics would seem to be somewhat offset by the downside of rising rates’ impact on these sectors.

(New York)

Rising rates are definitively upon us. The Fed is poised to hike very soon and is likely to do so again before the end of the year. Some popular sectors, especially those with good dividends—REITs, utilities, telecoms—can suffer badly in rising rate periods. Luckily there are several ETFs that can help advisors hedge their exposure. The most common rate hedged ETFs are bond-based and use a strategy of buying higher-yielding corporate bonds and hedging their rate risk by short-selling Treasuries. The strategy seems to work well. For instance, the iShares Interest Rate Hedged Corporate Bond ETF (LQDH) gained about 11% between the 10-year Treasury’s low in July 2016 to now, while its unhedged cousin, the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) lost 0.45%.

FINSUM: That is quite a margin between the two funds, which is a testament to how well the strategy performs in rising rate periods. There are several similar funds out there, and they seem like a good idea right now.