Categories: DividendsExchange Traded Funds (ETFs)U.S. Investing

Consider Investing in Dividend Dandies

Last week’s ETF Talk introduced the concept of smart beta funds. A key reason a person might invest in a smart beta fund would be to use the fund’s formula to invest more heavily in quality equities that are underrepresented in a typical market-cap-weighted exchange-traded fund (ETF). One quality indicator in a stock is whether or not it issues a dividend, and there are a number of smart beta funds which focus on dividend-paying stocks, including FlexShares Quality Dividend ETF (QDF).

QDF seeks to replicate the results, before fees and expenses, of an index of high-quality dividend-paying equities. “High-quality” in this case is defined by fundamentals such as profitability, reliable cash flow and management performance. This fund is an income-oriented investment.

QDF has gained 6.40% in 2014, after recovering from market drops in February and August. Last year, the fund gained 33.27%. The yield is currently 2.69%. QDF typically makes an annual distribution.

QDF is currently well diversified, investing in the sectors of financial services, 14.76%; technology, 13.98%; consumer cyclical, 12.07%; energy, 11.52%; healthcare, 9.83%; consumer defensive, 9.21%; with smaller investments in industrials, utilities, basic materials and communication services. Its top 10 holdings make up 26.35% of the fund’s total assets. Holdings include Apple Inc., 3.72%; Wells Fargo & Company, 3.71%; Merck & Company, 3.25%; Pfizer, Inc., 3.23%; and Exxon Mobil Corporation, 2.69%.

Dividends are desirable as income, and they can serve as a signal of quality, since they indicate a company with the cash to spare to distribute to shareholders. However, since corporate executives realize that dividends are desirable, dividends also can be manipulated to mask a corporation’s underperformance. FlexShares Quality Dividend ETF (QDF) combines the attractive prospect of dividends with an additional quality screen to protect your investment.

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Doug Fabian

Doug Fabian is the Editor of Weekly ETF Report, a free weekly e-newsletter, and the newsletter Successful ETF Investing. He’s also the host of the syndicated radio show, “Doug Fabian’s Wealth Strategies.” Doug also edits the fast-paced trading service ETF Trader’s Edge, for investors who want to take their profits to the next level. Taking over the reins from his dad, Dick Fabian, back in 1992, Doug has continued to uphold the reputation of the newsletter as the #1 risk-adjusted market timer as ranked by Hulbert’s Investment Digest. Doug became a member of the “SmartMoney 30” in 1999 — a listing of the most influential individuals in the mutual fund industry. In the feature, SmartMoney magazine exclaims that Doug is the best-known “trend follower” among the $56 billion (and growing) group of financial advisors. In 2001, Doug wrote “Maverick Investing,” published by McGraw-Hill. He also regularly appears at seminars around the country, stands out on the pages of the largest newspapers (The Wall Street Journal, The Los Angeles Times, and The New York Times), and speaks on national television (CNBC, Fox News, and Bloomberg Forum). For more than 35 years, Successful ETF Investing (formerly the Telephone Switch Newsletter and Successful Investing) has produced double-digit percentage annual gains. Doug has become known for his expert knowledge and timely use of innovative tools, such as exchange-traded funds, bear funds, and enhanced-index funds to profit in any market climate. For more information about Doug’s services, go to http://www.fabian.com/