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Fed Meeting No Shocker: Time for High Dividend ETFs?
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As expected, the Fed stood pat in the first meeting of 2017, which largely remained overlooked and sidelined by the volley of debatable announcements from President Trump and the barrage of earnings releases. The central bank kept its benchmark overnight lending rate unchanged at 0.50–0.75%. In December, the Fed enacted the second rate hike in almost a decade.
The Fed indicated that “measures of consumer and business sentiment have improved of late” but business fixed investment still remains “soft”. The labor market is in a solid state and inflation – though up lately – is yet shy off the long-run target of 2%.
The bank is keeping watch on the progression of inflation (which should reach the goal over the medium term) and the macroeconomic situation. Muted inflation mainly due to stubbornly low oil prices has been an issue for long for the Fed.
But lately, the scenario improved with signs of recovery in the oil patch and Trump’s pledges for fiscal reflation. Also, we believe that the Fed’s future decisions will largely depend on how Trump’s policies shape up. Market watchers should get cues to Trump’s reflation polices by the next Fed meeting scheduled in March.
What Lies Ahead?
Traders are now pricing two rate hikes this year, though the Fed had penciled in three rate hikes for 2017. Meanwhile, Trump spoke about the currency war. He indicated that several European and German economies have kept their currencies low to gain trade advantage.
Thanks to this comment as well as skepticism and uncertainty regarding his trade and immigration policies, U.S. dollar ETF PowerShares DB US Dollar Bullish ETF (UUP - Free Report) was down about 2.7% in the month.
Though UUP gained just 0.1% on February 1, following the Fed reassuring comments regarding U.S. economic improvement, the momentum is expected to moderate going forward. The yield on the 10-year Treasury note rose 3 bps to 2.48% on February 1 form the day before.
Moreover, the U.S. GDP growth data for Q4 came in lower than expected. The U.S. economy grew an annualized 1.9% sequentially in Q4, lower than 3.5% expansion in Q3 and shy off market expectations of 2.2%.
Why to Look at Dividend Paying Securities?
This outlook benefits dividend paying companies as investors can earn steady current income. Even if those securities end up seeing capital losses, dividends will make up for some of the losses (read: 3 High Dividend ETFs & Stocks for Roth IRA).
Further due to high level of uncertainty, volatility is expected to remain high. Most dividend paying companies are highly stable in nature and tend to perform well amid market gyrations.
Financial stocks perform better in a rising rate environment. And nothing could be better than coupling the high dividend nature with a financial ETF. Investors should note that KBWD yields about 7.83% annually. The fund has a Zacks Rank #2 (Buy) with a medium risk outlook (read: 9 Winning ETF Ways for Those Who Fears Rising Yields).
This ETF provides exposure to about 100 highest dividend paying stocks from around the world with each holding less than 2.3% of the assets. From a country look, about half of the portfolio is allocated to America (read: Earn 4% Yield with These Dividend ETFs).
Global X SuperDividend U.S. ETF (DIV - Free Report) – Yields 6.59%
The fund tracks an equally weighted index that holds the 50 highest dividend yielding equity securities in the U.S.
This fund follows the S&P 500 Low Volatility High Dividend Index and holds 50 securities, which have historically provided high dividend yields and low volatility.
This fund offers exposure to 50 stocks selected principally based on dividend yield and consistent growth in dividends. It tracks the NASDAQ US Dividend Achievers 50 Index (read: 6 Dividend ETFs of 2016 with Over 3% Yield & 20% Returns).
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Fed Meeting No Shocker: Time for High Dividend ETFs?
As expected, the Fed stood pat in the first meeting of 2017, which largely remained overlooked and sidelined by the volley of debatable announcements from President Trump and the barrage of earnings releases. The central bank kept its benchmark overnight lending rate unchanged at 0.50–0.75%. In December, the Fed enacted the second rate hike in almost a decade.
The Fed indicated that “measures of consumer and business sentiment have improved of late” but business fixed investment still remains “soft”. The labor market is in a solid state and inflation – though up lately – is yet shy off the long-run target of 2%.
The bank is keeping watch on the progression of inflation (which should reach the goal over the medium term) and the macroeconomic situation. Muted inflation mainly due to stubbornly low oil prices has been an issue for long for the Fed.
But lately, the scenario improved with signs of recovery in the oil patch and Trump’s pledges for fiscal reflation. Also, we believe that the Fed’s future decisions will largely depend on how Trump’s policies shape up. Market watchers should get cues to Trump’s reflation polices by the next Fed meeting scheduled in March.
What Lies Ahead?
Traders are now pricing two rate hikes this year, though the Fed had penciled in three rate hikes for 2017. Meanwhile, Trump spoke about the currency war. He indicated that several European and German economies have kept their currencies low to gain trade advantage.
Thanks to this comment as well as skepticism and uncertainty regarding his trade and immigration policies, U.S. dollar ETF PowerShares DB US Dollar Bullish ETF (UUP - Free Report) was down about 2.7% in the month.
Though UUP gained just 0.1% on February 1, following the Fed reassuring comments regarding U.S. economic improvement, the momentum is expected to moderate going forward. The yield on the 10-year Treasury note rose 3 bps to 2.48% on February 1 form the day before.
Moreover, the U.S. GDP growth data for Q4 came in lower than expected. The U.S. economy grew an annualized 1.9% sequentially in Q4, lower than 3.5% expansion in Q3 and shy off market expectations of 2.2%.
Why to Look at Dividend Paying Securities?
This outlook benefits dividend paying companies as investors can earn steady current income. Even if those securities end up seeing capital losses, dividends will make up for some of the losses (read: 3 High Dividend ETFs & Stocks for Roth IRA).
Further due to high level of uncertainty, volatility is expected to remain high. Most dividend paying companies are highly stable in nature and tend to perform well amid market gyrations.
PowerShares KBW High Dividend Yield Financial Portfolio ETF (KBWD - Free Report) – Yields 7.83%
Financial stocks perform better in a rising rate environment. And nothing could be better than coupling the high dividend nature with a financial ETF. Investors should note that KBWD yields about 7.83% annually. The fund has a Zacks Rank #2 (Buy) with a medium risk outlook (read: 9 Winning ETF Ways for Those Who Fears Rising Yields).
SuperDividend ETF (SDIV - Free Report) – Yields 6.74%
This ETF provides exposure to about 100 highest dividend paying stocks from around the world with each holding less than 2.3% of the assets. From a country look, about half of the portfolio is allocated to America (read: Earn 4% Yield with These Dividend ETFs).
Global X SuperDividend U.S. ETF (DIV - Free Report) – Yields 6.59%
The fund tracks an equally weighted index that holds the 50 highest dividend yielding equity securities in the U.S.
PowerShares S&P 500 High Dividend Portfolio (SPHD - Free Report) ??? 3.80%
This fund follows the S&P 500 Low Volatility High Dividend Index and holds 50 securities, which have historically provided high dividend yields and low volatility.
PowerShares High Yield Equity Dividend Achievers Portfolio (PEY - Free Report) – 3.30%
This fund offers exposure to 50 stocks selected principally based on dividend yield and consistent growth in dividends. It tracks the NASDAQ US Dividend Achievers 50 Index (read: 6 Dividend ETFs of 2016 with Over 3% Yield & 20% Returns).
Want key ETF info delivered straight to your inbox?
Zacks' free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>