![]() Johnson also provides a handy study of maximum drawdown in dividend ETFs - it provides investors with a sense of what a worst-case scenario would look like for various ETFs if they had declining dividends. Investors do want to see a yield that is steadily growing at a pace that outstrips inflation. ![]() It is more important to see cash flow growing over time rather than yield in isolation, Johnson said. Consider the energy sector, where yields have been going up as stock prices go down, but cash flow is not safe, given the sector free fall amid low oil prices. But it's more important to look at the stability of the cash-flow stream of a company. "Yield is market-dependent," he said, referring to the fact that as a stock declines in value, a yield will increase. The Morningstar ETF expert said it is important not to look at yield in isolation. Yes, yield is what distinguishes dividend stocks, but the further an investor stretches for income through high-yield ETFs implies "a sacrifice of quality," Johnson said. What sets dividend stocks and funds apart is the yield, but is absolute yield the most important factor in selecting a dividend investment? So they're a valid way to play dividend growth," he added.Ģ. "These are stocks, not bonds." But most of the ETFs in this category are focused on holdings that "have survived Armageddon. "Dividend-growth ETFs can bounce around a lot," Sizemore said. equity income fund is more than sufficient," he said.Įither way, it is important to remember that an ETF, even one with a high yield, is not a bond investment. "For the vast majority of investors, one steady, high-quality, core low-cost U.S. The ETFs are a low-cost, diversified way to own dividend-paying companies of all stripes, Morningstar's Johnson said. Sizemore said only investors with several hundred thousands of dollars should be picking individual dividend stocks. If you own a dividend stock or two and they blow up, it can sink your entire plan." "ETFs will pay a decent yield, and the risk is so low. "If your portfolio is a few tens of thousands of dollars, just buy an ETF or a few ETFs and be done," he said. The best way to answer this question is by looking at the overall size of your investment portfolio, said Charles Sizemore, a financial advisor at Sizemore Capital Management in Dallas. ![]() Is it better to buy individual dividend-rich stocks or dividend funds and ETFs? ![]() Here are four questions to make sure you make the most of dividend investing.ġ. If you've been neglecting dividends, it's time to consider a plan. If you're already a dividend investor, it's time to check that your approach is set correctly. Personal Loans for 670 Credit Score or Lower Personal Loans for 580 Credit Score or Lower Best Debt Consolidation Loans for Bad Credit ![]()
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