QDIV: Dividend ETFs May Have A Silver Lining As Company Growth Remains Tedious

I rate QDIV as hold, as whether dividends will experience reduced payouts or continue to be a silver lining in the current market remains an uncertainty. Investors could however find QDIV an increasingly attractive investment as inflation continues to stifle the potential of many growth securities.

This ETF may offer quality, diverse exposure to the highest-yielding securities within the United States. An increasing number of investors may also seek higher dividends in the medium-long term. This is also the first equal-weighting ETF I have written about, and I can already begin to see how this component could minimize risk in an environment where stable returns are particularly salient. Attractive valuation and low expenses make this ETF more notable, especially for more novice investors that may not want to depend so much on growth in the current economy.

Certain dividend stocks and ETFs alike performed well in the past year and have shown to be a relatively reliable source of passive income compared to capital appreciation. As a result, these same assets saw increased popularity and buying volume in 2022. These factors could make QDIV a top pick for value investors in the medium to long term.

Strategy

QDIV tracks the S&P 500 Quality High Dividend TR USD while using a full replication technique. This could allow this ETF to provide investors with the most accurate representation of the designated index's performance. QDIV invests in both growth and value stocks within United States public equity markets. Investors should consider that allocations might be weighted heavier towards value stocks, as companies that pay higher dividends may trade at lower valuations.

Holdings Analysis

QDIV invests across a variety of sectors, exclusively within the United States markets. Consumer defensive, industrials, and technology are the leading sectors in this ETF, comprising almost half of total sector allocations. QDIV is quite sector diverse, as not one single sector comprises more than 20% of the total representation.

Specific stock allocations are also very dispersed, with not one single stock accounting for more than 2% of the overall fund. Though the possibility of dividend cuts this year remains a looming threat, investors could rest assured that one company in QDIV cutting their dividend will have virtually no impact. This ETF allocates 15% to the top 10 holdings and 36% to the top 25 in an ETF of 78 holdings, making QDIV not top-heavy and possessing minimal concentration risk.

Strengths

Consistent outperformance against the broader market since the onset of the 2022 bear market could indicate a competitive edge. Since the beginning-middle of 2022, many investors have shifted their focus away from growth securities and more towards dividends. This could possibly explain how QDIV was able to beat the market during the economic downturn.

This ETF has a 56% lower PE Ratio compared to S&P 500 TR USD (SPY) as well as an expense ratio of only 0.20%. QDIV could therefore be an undervalued fund that offers quality returns amid high inflation, while also sparing worry of volatility and high fees.

Weaknesses

QDIV has a very low AUM of only $65mm while only trading roughly $260,000 worth of shares daily. This ETF's low AUM and poor liquidity could potentially widen the bid-ask spread and increase the tracking error in the future. Investors may therefore want to consider the possibility of higher transaction costs affecting their returns.

High-quality dividend indices like the one QDIV tracks are often quite focused on historical dividend growth as a determinant of present quality. Though historical growth can outline fundamental advantages of a security, it's still not fully indicative of future growth potential.

Opportunities

A persistent or worsened capital shortage era than the one we are currently in could greatly redirect investors' focus away from growth and more towards value and dividends. The dire condition of the current capital shortage era was possibly reflected in recent bank runs. These events could indicate the current struggle to generate sufficient capital as well as the fragility of certain growth stocks like those in the financial sector. If capital remains scarce as it is now, dividends could increasingly be seen as a more reliable source of income.

Investors might also begin to consider QDIV in the medium term for its advantages and lesser risks over value ETFs in sectors like financials and real estate. For example, dividends are decent in ETFs like the First Trust Nasdaq ABA Community Bank ETF (QABA) and the Financial Select Sector SPDR ETF (XLF) but are not the primary focus like in QDIV. Furthermore, their high yield might have attracted value investors, but these same investors might regret it soon as some banks may have to cut their dividends.

Threats

If inflation remains elevated for long enough, certain companies held in QDIV may be forced to reduce their dividends and redirect their focus toward capital appreciation and staying afloat. Some are already predicting that investors are going to earn significantly less from stock dividends this year.

This could reduce this ETF's attractiveness, as quality yields are the silver lining in ETFs like QDIV that aren't particularly focused on companies with growth potential.

Conclusions

ETF Quality Opinion

QDIV may provide investors with exposure to an array of high-quality dividend-focused stocks, making it a potentially attractive option to those still skeptical of macro growth forecasts. With limited expenses and volatility, QDIV offers an attractive yield that could serve it well amid the current capital shortage.

ETF Investment Opinion

QDIV gets a hold rating at the current moment. Market conditions could prompt a shift toward dividends over growth but just as well contribute to dividend reductions or cuts. Furthermore, this ETF could profit from both its attractive yield and its fundamental difference from sector or industry-specialized ETFs like QABA that happen to pay generous dividends with a lesser safety net.