In anticipation of the Federal Reserve’s upcoming interest rate decision in September, more investors are turning their attention to dividend stocks. Paul Baiocchi, the chief ETF strategist at SS&C ALPS Advisors, suggests that this shift towards dividend investments is a prudent move given his outlook on the Fed’s decision to ease rates. According to Baiocchi, investors are reallocating their assets from money markets and fixed income towards dividend-paying companies, especially those that may benefit from a declining interest rate environment.
ALPS, the issuer of various dividend exchange-traded funds, such as the ALPS O’Shares U.S. Quality Dividend ETF (OUSA) and the ALPS O’Shares U.S. Small-Cap Quality Dividend ETF (OUSM), is at the forefront of this trend. Compared to the S&P 500, these dividend ETFs have a heavier weighting in sectors like health care, financials, and industrials while excluding energy, real estate, and materials. Baiocchi argues that these sectors are prone to price and fundamental volatility, which could hinder the goal of providing drawdown avoidance that OUSA and OUSM aim to achieve.
Mike Akins, founding partner of ETF Action, supports the defensive nature of OUSA and OUSM due to their focus on companies with strong balance sheets. Akins points out that the dividend category in ETFs has been gaining popularity, despite not having a clear explanation for its current appeal in the market. By emphasizing dividends that are durable, growing, and well-supported by fundamentals, investors are seeking a more stable and reliable source of income in an uncertain market environment.
As investors navigate through the evolving market conditions and uncertainties surrounding the Federal Reserve’s interest rate decisions, the shift towards dividend stocks and ETFs offers a potential hedge against market volatility. By focusing on companies with a history of steady dividend payouts and strong fundamentals, investors can build a defensive investment strategy that aims to provide reliable income and long-term growth potential. As the popularity of dividend investing continues to rise, investors may find value in diversifying their portfolios with dividend-paying securities to mitigate risks and enhance overall returns in the current market environment.