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Dividend ETFs to Invest as Odds for October Fed Rate Cut High

Sanghamitra Saha

The Fed is meeting at the end of the month. The central bank slashed rates twice this year by 25 bps each. With some key economic data looking bleak, several market watchers are betting big on a rate cut in the upcoming meeting. At the current level, according to CME FedWatch tool, there is a 93% chance of a 25-bp rate cut in this meeting, up from 49.2% chance noted a month ago.

The bets over lower rates increased a bit in recent trading as U.S. GDP growth is expected to have slowed in the third quarter hurt by softer manufacturing and retail sales data.  The Atlanta Fed’s GDPNow model estimates the U.S. economy expanded 1.8% in the third quarter, down from the second quarter’s growth of 2%. Goldman Sachs also reduced its outlook for Q3 GDP in recent times and quoted the expected figure at 1.7% (read: S&P 500 ETFs & Stocks to Buy on a Likely Great Rotation).

The IMF also slashed its global growth projections lately, calling for 3% and 3.4% expansion in 2019 and 2020, respectively. Projections were cut from the previous levels of 3.2% and 3.5% recorded in July. The forecast for this year would mark the lowest growth rate since 2009. Such low growth rates demand easy money polices globally.

Why to Buy Dividend ETFs?

The accommodative Fed should do good for stocks as there will be more months of cheap money inflows. Among stocks, income-producing securities might do even better for investors in search of solid and steady current income. The past decade was especially favorable for dividend ETFs as central banks including the Fed has been ultra-dovish. Research shows that dividend stocks often beat their non-dividend paying counterparts over longer periods.

Against this backdrop, below we highlight a few ETFs that are to register an outperformance.

iShares Core High Dividend ETF HDV

The underlying Morningstar Dividend Yield Focus Index offers exposure to high quality U.S. domiciled companies that have had strong financial health and an ability to sustain above average dividend payouts            . The fund yields 3.33% annually (read: 5 Amazing ETF Strategies for the Fourth Quarter).

O'Shares FTSE US Quality Dividend ETF OUSA

The underlying FTSE US Qual / Vol / Yield Factor 5% Capped Index measures the performance of publicly-listed, large-capitalization and mid-capitalization dividend-paying issuers in the United States. The fund yields 2.47% annually.

Vanguard High Dividend Yield ETF VYM

The underlying FTSE High Dividend Yield Index, which is consists of common stocks of companies that pay out dividends that generally are higher than average. The fund yields about 3.13% annually.

Global X SuperDividend U.S. ETF DIV

The underlying INDXX SuperDividend US Low Volatility Index tracks the performance of 50 equally weighted common stocks, MLPs & REITs that rank among the highest dividend-yielding equity securities in the United States. It yields 7.42% annually.

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Vanguard High Dividend Yield ETF (VYM): ETF Research Reports
 
iShares Core High Dividend ETF (HDV): ETF Research Reports
 
Global X SuperDividend U.S. ETF (DIV): ETF Research Reports
 
OShares FTSE U.S. Quality Dividend ETF (OUSA): ETF Research Reports
 
Invesco S&P SmallCap High Dividend Low Volatility ETF (XSHD): ETF Research Reports
 
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