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Dividend ETFs to Grab as Fed Cuts Rates Once Again

Sweta Jaiswal, FRM

The Federal Reserve has cut interest rates again — the second time since late July 2019. The rate, which was slashed a quarter basis points in the two-day FOMC meeting that concluded on Sep 18, now stands in the range of 1.75-2%.

In order to maintain the U.S. economy’s decade-long economic expansion while protecting it against slowing global economic growth and uncertainty related to the Sino-U.S. trade war, the Fed has opted for the rate cut. In this regard, Jerome Powell said, "we took this step to help keep the U.S. economy strong in the face of some notable developments and to provide insurance against ongoing risks" (read: ETF Winners Amid Half-Hearted Response to Fed's Rate Cut).

The Federal Reserve also kept chances of another rate cut alive this year in case the economy deteriorates further. The officials had a divided outlook about the economy. In fact, St. Louis Fed president James Bullard expected a 50 basis points rate cut. However, Boston Fed president Eric Rosengren and Kansas City Fed president Esther George preferred the rate to remain unchanged at 2-2.25%. Notably, per the source, seven Fed members expect another rate cut in 2019 while five members believe the rate should be in the range of 2% to 2.25% by year end (read: Sector ETFs, Stocks Set to Explode After Another Rate Cut).

Fed Couldn’t Appease Trump

The Fed’s decision could not satisfy President Trump, who has been urging the central bank to lower the interest rate to zero or push it in the negative territory just like the European Central Bank. In this regard, he tweeted after the Fed’s announcement that “Jay Powell and the Federal Reserve Fail Again. No ‘guts,’ no sense, no vision! A terrible communicator!”

Fed’s Projections

In context to GDP, Fed officials expect the same to increase to 2.2% in 2019 and 1.9% in 2021 from its earlier projection of 2.1% and 1.8%, respectively. However, for 2020 and the long term, GDP is expected to remain unmoved at 2% and 1.9%, respectively.

The central bank projects 2019 interest rate at 1.9%, down from its June prediction of 2.4%. For 2020, the rate is expected to remain at 1.9%, down from the June forecast of 2.1%. For 2021, the rate is now projected to be 2.1%, down from 2.4%. Interest rate in projected at 2.4% for 2020. The same should be 2.5% over the long haul, unchanged from the June projection.

Notably, unemployment level is at a 50-year low and there has been a rise in wages. The Fed officials expect the unemployment rate at 3.7% for 2019, up from 3.6% expected at its June meeting. For 2020 and 2021, unemployment rate remains pegged at 3.7% and 3.8%, respectively. Over the longer term, unemployment rate is projected to be 4.2%.

Dividend ETFs to Grab

The appeal for dividend ETFs has been on the rise this year on investors’ drive for juicy yields. This is especially true against the backdrop of falling yields, easing monetary policy globally and market uncertainty triggered by trade gyrations, geopolitical tensions and global growth slowdown concerns. Moreover, the central banks across the globe are taking steps to prop up slowing economic growth that will push yields lower. Against this backdrop, let’s take a look at some dividend ETFs:

WisdomTree U.S. Quality Dividend Growth Fund DGRW)

This fund seeks to provide exposure to the large, established U.S. companies, providing high dividends by applying quality and growth screens. It has AUM of $2.87 billion and charges a fee of 28 basis points a year. From a sector’s perspective, the fund has high exposure to Information Technology, Industrials and Consumer Staples with 22.4%, 18.2% and 12.5% allocation, respectively (read: Era of Commission-Free ETFs Knocking on Investors' Door?).

FlexShares Quality Dividend Defensive Index Fund QDEF)

The fund replicates the price and yield performance, before fees and expenses, of the Northern Trust Quality Dividend Defensive Index. It has AUM of $440.5 million and charges a fee of 37 basis points every year. From a sector’s angle, the fund has solid exposure to Information Technology, Health Care and Consumer Discretionary with 19.6%, 12.5% and 12.1% allocation each (read: Earn 5% Yields or More With These Dividend ETFs & Stocks).

WBI Power Factor High Dividend ETF WBIY

The underlying Solactive Power Factor High Dividend Index tracks the performance of 50 U.S.-listed stocks among the large, mid and small-caps that exhibit high dividend yields and strong fundamentals. It has AUM of $96.4 million and charges a fee of 70 basis points per year. From a sector’s viewpoint, the fund has high exposure to Consumer Discretionary, Financial Services and Technology with 30.1%, 20.6% and 12.9% allocation, respectively (as of Jun 30) (read: 4 Dividend ETFs to Ride Out Trade War Uncertainty).

Schwab US Dividend Equity ETF SCHD

The underlying Dow Jones U.S. Dividend 100 Index is designed to measure the performance of high dividend-yielding stocks issued by U.S. companies with a record of consistently paying out dividends, selected for fundamental strength relative to their peers, based on financial ratios. It has AUM of $10.27 billion and charges a fee of 6 basis points a year. From a sector’s end, the fund has strong exposure to Consumer Staples, Information Technology and Industrials with 21%, 18% and 16.6% allocation, respectively (as of Jun 30) (read: Red Hot Dividend ETFs of 2019).

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Click to get this free report WisdomTree U.S. Quality Dividend Growth Fund (DGRW): ETF Research Reports FlexShares Quality Dividend Defensive Index Fund (QDEF): ETF Research Reports WBI Power Factor High Dividend ETF (WBIY): ETF Research Reports Schwab U.S. Dividend Equity ETF (SCHD): ETF Research Reports To read this article on Zacks.com click here. Zacks Investment Research Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report