As the Federal Reserve’s September interest rate decision approaches, dividend stocks are increasingly attracting investors’ attention.
Paul Baiocchi of SS&C ALPS Advisors endorses this approach, predicting a potential rate cut by the Fed.
“With the expectation of falling interest rates, investors are shifting their attention to dividend-yielding stocks rather than traditional money markets or fixed income securities. This is particularly beneficial for leveraged companies,” said Baiocchi, the ETF’s chief strategist.
SS&C ALPS Advisors manages several dividend-focused exchange-traded funds, including the ALPS O’Shares US Quality Dividend ETF (OUSA) and the ALPS O’Shares US Small-Cap Quality Dividend ETF (OUSM).
Compared to the S&P 500, both ETFs have a higher allocation to sectors such as healthcare, financials and industrials, Baiocchi said. These ETFs strategically avoid sectors such as energy, real estate and materials, which Baiocchi identifies as the most volatile market segments.
He further explained that these sectors not only present price volatility, but also fundamental unpredictability, which could undermine the investment objectives of OUSA and OUSM, which aim to minimize losses.
“When selecting dividends, the focus is not only on yield, but also on the sustainability and growth of those dividends, which should be well supported by strong corporate fundamentals,” Baiocchi added.
Mike Akins, founding partner of ETF Action, believes that OUSA and OUSM are conservative investment strategies, primarily because the associated stocks typically have strong balance sheets.
Akins also highlighted the growing attractiveness of the dividend category within ETFs.
“Explaining the surge in popularity of dividend investing is difficult without predictive insights. However, consistent dividend distributions over the years likely instill a sense of financial stability and reliability in those companies,” Akins said.
As the Fed’s decision approaches, a strategic shift toward dividend stocks may be a prudent move for investors seeking stable returns in a potentially volatile rate environment.
