In the world of dividend investing, exchange-traded funds (ETFs) offer investors a variety of options. Some ETFs focus on high yields, while others prioritize dividend growth. A few funds blend both strategies.
The O’Shares U.S. Quality Dividend ETF (OUSA) is one ETF that emphasizes reliable dividend growth. Its trailing 12-month dividend yield may not be eye-popping, but this leaves room for future payout increases. Over the long term, this focus on consistent dividend growth could be a key advantage for OUSA.
High-yield stocks can be sensitive to interest rate changes. They may perform well when rates are low but struggle during Federal Reserve tightening cycles. Some high-dividend companies are forced to reduce or eliminate payouts in these periods.
OUSA’s dividend growth strategy could provide an edge over funds that mix growth and yield, as including yield-focused metrics can slow down payout growth. OUSA’s dividend growth approach also implies a degree of safety.
Focuses on dividend growth
Investors who favor this strategy are often willing to accept lower current yields in exchange for higher future payouts. They prefer stocks with strong competitive advantages, long histories of dividend growth, and robust profitability. The ETF’s quality profile is enhanced by its sector allocations.
Many high-dividend ETFs are heavily invested in debt-burdened real estate and utilities stocks. In contrast, OUSA has a combined 38% allocation to technology and healthcare—sectors with many cash-rich companies. OUSA isn’t without drawbacks.
Dividend growth stocks can lag the broader market at times. However, ETFs like OUSA typically avoid firms that cut or suspend dividends, which can lead to short-term setbacks. Instead, dividend growth funds focus on companies with higher profitability and stronger competitive positions, which can result in better performance during volatile markets.
For investors seeking a balance of safety and growth in dividend investing, OUSA offers a compelling choice in the ETF universe. While it may not always keep pace with the broader market during rallies, its stability and potential for long-term dividend growth make it an attractive option for many income-focused investors.
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