Dividend Offense, Dividend Defense: This ETF Strategy Systematically Avoids Dividend Risks
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The economic carnage wrought by COVID-19 has forced many long-time dividend paying stocks to slash their yields, with many more favored dividend paying names at risk of having to follow suit. Reality Shares Co-Founder and CEO Eric Ervin rejoins Let's Talk ETFs and walks listeners through the proprietary DIVCON "dividend safety" rating system that powers his firm's DIVCON Leaders Dividend ETF (LEAD) and DIVCON Dividend Defender ETF (DFND). The objective is simple: Help yield-focused investors stay one step ahead of the dividend curve by either completely avoiding those dividend payers that are most likely to cut their dividends, as in the case of LEAD - or by outright shorting those companies, as is the case with 25% of DFND's portfolio (the fund goes long the dividend paying stocks least likely to cut their dividends with the remaining 75% of its holdings). How's the strategy playing out for investors? So far in 2020, these ETFs' performance speaks for itself, with outperformance of between 8% (LEAD) and 11% (DFND) versus the S&P 500. Show Notes4:00 - How has Eric's work life changed as a result of COVID-19? What's the situation in San Diego?7:30 - How does the DIVCON methodology work?11:30 - Choosing companies likely to grow their dividends18:00 - Uncovering the "riskiest" dividend stocks: "DIVCON 1"20:00 - How do the current DIVCON rankings break down in terms of sector and market cap?24:00 - How often does DIVCON re-rank the universe of dividend paying stocks? How often are these funds' underlying components changed?29:30 - Fund holdings: "DIVCON 5" standouts37:00 - DFND: Is there less risk by being long and short at the same time?42:30 - Why are DFND's expenses so high?46:45 - What can investors expect from dividend stocks - and interest rates in general - in the current environment?Learn more about your ad choices. Visit megaphone.fm/adchoices