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The Best Dividend Investing Strategy for Today's Market?

Tilly's (TLYS) closed the most recent trading day at $16.18, moving -0.98% from the previous trading session.
  • (0:45) - Dividend Investing Strategy: What Does it Provide Investors?

  • (3:00) - Dividend Paying Companies: High Yield vs. Dividend Growth

  • (5:25) - QuantShares Hedged Dividend Income Fund: DIVA

  • (9:00) - How Does DIVA Fit Into An Investor's Portfolio?

  • (11:00) - QuantShares Market Neutral Funds

  • (14:45) - Episode Roundup: Podcast@Zacks.com

In today’s growth-focused market, many investors have put dividend paying stocks on the backburner. Instead, the focus has largely been on the FANG group and sexy stocks in hot technology areas.

However, with increased concern over the market lately, is it time to once again consider dividend securities? After all, dividends account for a sizable percentage of long-term investor returns, and getting paid to hold a stock is certainly a plus too. But how do you decide which to focus in on and which to avoid?

Dividends in Focus

Well, today’s podcast takes a closer look at this topic with Chuck Martin, the Portfolio Manager at AGFIQ for QuantShares. Chuck’s focus today is on the dividend market, and we discuss some of the key things that he looks for when it comes to yield-producing securities.

We also take a closer look at why some investors might want to consider dividend stocks in today’s market, and what the impact of rising rates could be on this type of stock as well. Chuck and I don’t just focus on high yielding stocks though, as we also discuss the dividend aristocrat market and what investors need to know about these stocks as well.

DIVA Strategy

The bulk of the discussion centers on the QuantShares Hedged Dividend Income Fund (DIVA) though, as we take a closer look at this strategy. The fund looks to give investors the spread return between high and low dividend paying stocks, going long in companies that pay the highest yields, and shorting those that have unstable or limited yield prospects.

This approach helps to reduce risk, and it results in a corporate bond-like risk profile for the fund. That makes it somewhat comparable to funds like LQD or VCIT, albeit with lower interest rate risk and credit risk for DIVA. It also makes this QuantShares fund a way to strip out some of the equity market volatility while still capturing yield from some of the best dividend companies in the market today.

Top holdings right now focus in on energy at about 20% of the portfolio, while it accounts for a sizable short percentage too. This includes companies like ONEOK (OKE) and HollyFrontier (HFC) for long exposure, though the fund is well spread out from a company specific perspective. Two other key areas for the fund right now are utilities and financials, but check out the podcast for more on the fund’s construction, and how this type of strategy can fit into a portfolio.

We also take a look at two issues which should be especially important to investors in these types of funds, and those are expenses and yields. The expenses might appear extremely high here at first glance, but Chuck walks us through this aspect, while we also talk about the current yield of the fund too.  


Finally, we also take a closer look at some of the other funds from QuantShares which are focused on a market neutral strategy. We discuss their US Market Neutral Anti-Beta Fund (BTAL), which looks to provide a spread return between low and high beta stocks, while we also investigate their US Market Neutral Momentum Fund (MOM) which seeks to provide a spread return between high and low momentum stocks, something that may be of particular interest in today’s market environment.

But make sure to check out the podcast for more information on these funds, as well as the dividend hedged strategy, in this week’s Dutram Report!

Bottom Line

But what do you think about DIVA and this hedging strategy? Make sure to write us in at podcast @ zacks.com or find me on Twitter @EricDutram to give us your thoughts on this, or anything else in the fund market.

But for more news and discussion regarding the world of investing, make sure to be on the lookout for the next edition of the Dutram Report (each and every Thursday!) and check out the many other great Zacks podcasts as well!

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