With the upcoming Federal Reserve interest rate decision in September, investors are turning their attention to dividend stocks. According to Paul Baiocchi of SS&C ALPS Advisors, this shift is a wise move as he anticipates the Fed to ease rates. Baiocchi mentioned in an interview on CNBC’s “ETF Edge” that investors are moving away from money markets and fixed income towards dividend stocks. Specifically, investors are gravitating towards leveraged companies that could benefit from a declining interest rate environment.
ALPS is the issuer of several dividend exchange-traded funds, including the ALPS O’Shares U.S. Quality Dividend ETF (OUSA) and the ALPS O’Shares U.S. Small-Cap Quality Dividend ETF (OUSM). These ETFs are overweight in the health care, financials, and industrials sectors compared to the S&P 500. On the other hand, they exclude energy, real estate, and materials sectors, which Baiocchi considers to be highly volatile. The goal of OUSA and OUSM is to provide drawdown avoidance by focusing on durable dividends that are supported by strong fundamentals.
Mike Akins, the founding partner of ETF Action, views OUSA and OUSM as defensive strategies due to the clean balance sheets of the companies in these ETFs. This defensive positioning aligns with the current market sentiment and uncertainty surrounding the future of interest rates. Additionally, Akins points out that the dividend category in ETFs has been gaining popularity, indicating a broader trend towards dividend investing.
The surge in popularity of dividend stocks can be attributed to various factors, including the anticipation of a potential interest rate cut by the Federal Reserve. Investors are seeking stable and income-generating assets in a market environment characterized by uncertainty and volatility. Dividend stocks offer a way to potentially mitigate downside risk while providing a steady stream of income through dividends. This trend reflects a shift in investor preferences towards defensive and income-focused investment strategies.
The growing interest in dividend stocks ahead of the Federal Reserve interest rate decision highlights investors’ cautious approach in a volatile market environment. By focusing on high-quality dividend-paying companies with strong fundamentals, investors are positioning themselves defensively while seeking income-generating opportunities. The rise of dividend ETFs such as OUSA and OUSM underscores the appeal of dividend stocks as a strategic investment choice in today’s uncertain market conditions.