Dividends were hot to end last year and enter into 2023. While the year did start with a notable mini-rally, current income is still worth adding to a portfolio to mitigate volatility. On top of last month’s bank crisis, the Fed isn’t stopping its fight against inflation. These and other challenges may invite advisors and investors to diversify dividends in a pair of ETFs like the ALPS O’Shares U.S. Quality Dividend ETF (OUSA) and the ALPS O’Shares Europe Quality Dividend ETF (OEUR).
Dividends, of course, are a powerful tool for those investors who are at or nearing retirement, and that matters in a year in which so many market watchers are anticipating a recession. Fixed income has offered notable yields, but U.S. equities have struggled in ETFs over the first quarter – presenting a divided offering ETF or ETFs as a potent alternative for those looking to stabilize portfolios.
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The moment may call for strategies that not only offer the ability to diversify dividends but also rely on a quality screen. As a factor, quality comes in many varieties, but most emphasize attributes like sturdy balance sheets, positive cash flows, and healthy revenue outlooks – factors that help quality stocks avoid being punished by investors for revenue or profit forecasting misses.
That could position the duo of OUSA and OEUR as an intriguing approach to the rest of 2023 for those who like the combination of dividends and quality and want to diversify dividends outside the U.S., too.
OEUR tracks the O’Shares Europe Quality Dividend Index and charges 48 basis points (bps) to do so, weighting its large and mid-cap Europe stocks based on high quality, low volatility, and high dividend yield. With a 5% weight on any one index constituent and a sector weight cap of 22%, OEUR has offered a 2.01% annual dividend yield.
OUSA, meanwhile, keeps things domestic, tracking the O’Shares US Quality Dividend Index for the same 48bps fee, and uses four, not three, weights for its large-cap U.S. stocks, adding dividend quality to OEUR’s factors. OUSA has offered a 2.1% annual dividend yield for its approach, with the same single constituent and sector weights as OEUR.
OUSA holds names like Home Depot, Inc. (HD) and Johnson & Johnson (JNJ), with health technology as its largest sector allocation. OEUR, meanwhile, leans more toward consumer non-durables, with that sector as its largest.
Investors and advisors have a lot on their plates right now, but dividends can be a great tool to mitigate that volatility for advisors and for clients. A duo like OUSA and OEUR don’t just offer a dividend-focused strategy, but the ability to diversify dividends and add in a quality screen – the kind of factor focus that could help in an uncertain 2023.
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