Every week, I scan the charts of 23 different sector exchange-traded funds (ETFs) along with the leading companies from each. It’s my way of making sure that I’m aware of what’s going on in the less talked about areas of the market.
After all, that’s usually where you uncover the opportunities that nobody is talking about… yet.
This week’s sector review focused on the boring Dividend Yield sector.
The iShares Select Dividend ETF (DVY) is made up of companies like Altria (MO), AT&T (T), KeyCorp (KEY), Pfizer (PFE), and International Paper (IP). I know, a real list of market “barn burners,” but together, the group is generating six month returns of 16%, almost matching the Nasdaq 100 ETF (QQQ)’s returns.
As a bonus, the DVY’s volatility is about 15% less than the QQQ, so the same performance with less volatility. Yes, please.
Cash flow into the dividend yielders has been on the rise, and with good reason. A group of investors that move from sector to sector in the market
I call them yield foragers.
Investors that have been happy to sit in high yielding CDs and money markets are now getting forced out of those safe harbors as banks look to get ahead of the Fed’s rate lowering curve. The move helps banks maintain their margins but means that investors looking for that monthly income check from their portfolio will have to move on.
The DVY’s quarterly paid dividend hits a yield of 3.7%. That’s just enough to cover current inflation, so you’re not losing purchasing power - but that’s not why the DVY looks more attractive to the market.
It’s the return of performance in the manufacturing and industrial companies that make up the DVY shares that gives this ETF a kicker.
Companies like AT&T and Altria recently crossed into long-term bullish patterns after years of declines. The “Dawn of the AI Innovation Era” has drawn assets from consumer and industrial based companies as investors looked for the quick returns associated with this new technology.
Now, we’re seeing the “rest of the market” start to catch up to the gains in large cap technology and other juggernauts as institutions and individual investors reallocate years of gains to more “value” based investments.
Add to this the fact that the Fed’s interest rate forecast will force the yield foragers back into the market to maintain the income goals of their portfolios, and you have a broad-spectrum bull market rally that is relatively early in its life.
Bottom Line
We’re in the early stages of a bull run among dividend yielding stocks.
The iShares Select Dividend ETF provides an easy way to add this group to a portfolio to lower volatility and increase dividend income.
About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.