Written by Suzanne McGee
(Reuters) – Flows into U.S. exchange-traded funds (ETFs) that invest in high-dividend stocks have surged since the Federal Reserve began its rate-cutting cycle last month, but U.S. Treasury yields have The rise in dividends could slow down the flood of dividends. Investor's funds.
The group of 135 U.S. dividend ETFs tracked by Morningstar saw $3.05 billion in inflows in September, the same month the Fed cut interest rates by 50 basis points, the first rate cut since 2020. By comparison, average monthly inflows during the first eight months were $424 million. In 2024.
Investors looking for income-generating products are gaining new popularity in the face of expected lower yields as the Federal Reserve continues to cut interest rates.
“Monetary policy pivots will lead to cash seeking new homes, and high-dividend stocks will be among the beneficiaries,” said Nick Kalivas, head of factor equity ETF strategy at Invesco. .
It remains to be seen whether this trend will continue. The benchmark 10-year Treasury yield has risen in recent weeks, hitting a two-month high on Friday. The big jump in U.S. jobs data is a sign of economic resilience that likely doesn't require Fed policy. This year there will be even more significant cuts.
Still, Josh Strange, founder and president of NOVA's Good Life Financial Advisors, says the resurgence of interest in dividend stocks is due to changes in monetary policy, as well as sectors such as tech and more He said it was a response to rising valuations in the broader market.
The S&P 500 is valued at 21.5 times expected 12-month earnings, near its highest level in three years and well above its long-term average of 15.7 times, according to LSEG Datastream.
“The S&P 500 has become increasingly concentrated in a small number of stocks, and all of its momentum is centered around AI, making these stocks look frothy,” Strange said.
The yield offered by dividend ETFs varies depending on the strategy, but can range from just under 2% up to 3.6%. By contrast, the benchmark 10-year Treasury yield fell to about 3.6% in September.
Energy and financial stocks, such as Chevron Corp., JPMorgan Chase & Co., and Exxon Mobil Corp., are often included in dividend ETFs. But pharmaceutical companies like Procter & Gamble, utilities like Verizon (VZ.N> and Southern Company) and retailers like Home Depot are also participating.
Sean O'Hara, president of the Pacer ETF, said of the dividend outlook: “If you're looking for high dividends, there's a trade-off. You also want to own companies that can grow and increase their dividends.” Inside ETF The latest version of ETFs and related products.
To reduce the risk of owning companies with deteriorating fundamentals, Pacer builds ETF portfolios based on companies' free cash flow, such as the $24.8 billion Pacer US Cash Cows ETF launched in 2016. . The fund has attracted $7.1 billion in inflows in the past 12 months. .
(Reporting by Suzanne McGee; Editing by Ira Iosebashvili and Deepa Babington)
