Why this ETF could be a conservative way to provide additional income

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June 12, 2019 6:18pm NYSE:QDF

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From David Trainer:

When investors look for dividend stocks, they must assess the sustainability, or “safety” of the yield they’re seeking. I know from my Safest Dividend Yields Model Portfolio that companies with strong free cash flow provide higher quality and safer yields because the firm generates enough cash to support the dividend. A high dividend can disappear in an instant if the company paying it doesn’t generate enough cash flow.


I leverage the work I do in my Model Portfolios to identify quality dividend paying ETFs. My firm’s analysis[1] of the holdings of over 7,500 U.S. ETFs and mutual funds reveals an ETF that invests in higher-quality stocks than its benchmark. This ETF also finds companies with safer dividend yields. FlexShares Quality Dividend Index Fund (QDF) is this week’s Long Idea.

High-Quality Holdings Set QDF Apart

QDF is the 29th ranked ETF out of the 7,500+ U.S. ETFs and mutual funds under coverage. Despite its strong holdings, its $1.8 billion in assets are just 5% of the $38 billion allocated to its benchmark, the iShares Russell 1000 Value ETF (IWD).

Figure 1 shows that the holdings of these two ETFs are very different, and QDF deserves greater attention. QDF allocates 38% of its portfolio to attractive-or-better rated stocks compared to just 25% for IWD. On the other hand, QDF’s exposure to unattractive-or-worse rated stocks is just 12%, compared to IWD at 39%. QDF’s superior asset allocation positions it to outperform with lower risk than IWD.

Figure 1: QDF Asset Allocation Compared to IWD

QDF Asset Allocation vs. Benchmark

The FlexShares Quality Dividend Index Fund (QDF) fell $0.05 (-0.11%) in after-hours trading Wednesday. Year-to-date, QDF has declined -1.11%, versus a 8.50% rise in the benchmark S&P 500 index during the same period.

QDF currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #22 of 82 ETFs in the Large Cap Value ETFs category.


This article is brought to you courtesy of Forbes.


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