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Quality Reigns In This Dividend ETF

October 1, 2019 1:00 pm
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Quality Reigns In This Dividend ETF

The quality factor and dividend stocks often intersect, but some exchange traded funds make a point of combining those traits. The Global X S&P 500 Quality Dividend ETF (CBOE: QDIV) is one of those funds.

What Happened

QDIV, which debuted in July 2018, tracks the S&P 500 Quality High Dividend Index. That benchmark is comprised of 200 S&P 500 members that score well based on a combination of quality traits and dividend yield.

“Focusing on quality and dividend yield, the S&P 500 Quality High Dividend Index has delivered significant outperformance over the long term relative to the broader market,” said S&P Dow Jones in a recent note. “In nearly 25 years of history, the strategy produced an annualized return of 13.26%, compared with 9.89% from the overall U.S. equity market as indicated by the S&P 500.”

Why It's Important

Year to date, QDIV is higher by nearly 17%, a performance that's admirable relative to some other large-cap dividend strategies. Like other dividend ETFs that emphasize quality, QDIV can help reduced volatility and enhance risk-adjusted returns.

“Taking volatility into consideration, the S&P 500 Quality High Dividend Index offered a risk-adjusted return of 0.94, which is 38% higher than that of the S&P 500,” according to S&P Dow Jones.

Even with that volatility buffer, QDIV has a trailing 12-month dividend yield of 2.88%, or about 100 basis points more than the S&P 500's dividend yield.

QDIV's roster of 70 stocks is smaller than the 200 names found in the fund's underlying index, but concentration risk in the fund is muted because none of QDIV's holdings exceed weights of 1.61%. The Global X fund allocates nearly a third of its combined weight to technology and financial services stocks, two reliable dividend growth sectors.

What's Next

If broader markets decline, historical data pertaining to the S&P 500 Quality High Dividend Index indicate QDIV would capture significantly less of that downside than a standard equity benchmark.

“The strategy’s 73.2% downside capture ratio indicates that if the broader market declines 10%, the S&P 500 Quality Dividend Index would fall 7.3%, or 27% less than the benchmark,” according to S&P Dow Jones Indices. “On the other hand, the strategy captured 93.8% gains of the upside markets historically, indicating nearly full engagement in rising markets.”

QDIV also pays a monthly dividend, which can be helpful for investors seeking steadier payments than fund's paying on a quarterly basis.

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