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The Growing Risk To Dividend-Focused Strategies

Published Fri, 21 Dec 2018 10:30:43 -0500 on Seeking Alpha

“Many companies remain empowered to reprioritize debt reduction in their capital-allocation policies, a consideration when assessing BBB bond risk…Over the past year, more companies have started to manage debt loads and, profitability permitting, reduce leverage. This trend will persist in 2019, in our view, as economic activity moderates”
- Noel Hebert and Anna Constantino, Bloomberg Intelligence Credit Strategy Report, Published 12/11/2018.

“The only time you should eat diet food is when you’re waiting for your steak to cook.”
- Julia Childs (referenced in “When Life Gives You Lemons…,” Irish Times, 1/28/2018 )
I recently sat down for breakfast with a fellow ETF strategist, and he asked me about our current outlook for the corporate credit environment after having written a cautious ETF.com piece, “Growing Risk in Corporate Bond ETFs”, back in July 2018. I mentioned to him that investment grade valuations look more attractive (Figure 1) following the corporate credit sell-off over the past few months but that the risk is now beginning to shift from lenders to stockholders.
Figure 1 - BBB-Rated Credit Spreads Have Blown Out Over Growing Concerns that Corporate America Is Too Leveraged

Source: Bloomberg
In a nutshell, Corporate America is going on a balance sheet ‘diet’ after having binged on share repurchases, dividend payouts, and... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
ISHARES DOW JONES SELECT DIVIDEND INDEX FUND 103.22   0.0 0.00 3.37 3.31
VANGUARD HIGH DIVIDEND YIELD ETF 89.75   0.0 0.00 0.00 2.79
SPDR S&P DIVIDEND ETF 103.80   0.0 0.00 2.42 2.36
SPDR S&P 500 ETF 301.29   0.0 0.00 5.42 1.82

ISHARES DOW JONES SELECT DIVIDEND INDEX FUND - DVY
ISHARES DOW JONES SELECT DIVIDEND INDEX FUND - DVY  


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