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As Market Risks Rise, Buy QDIV
APS Management Group Inc. purchased a new stake in shares of Global X S&P 500 Quality Dividend ETF (NYSEARCA:QDIV) in the third quarter, according to the company in its most recent filing with the SEC. The firm purchased 15,718 shares of the company's stock, valued at approximately $553,000. APS Management Group Inc.
QDIV selects S&P 500 Index stocks that rank in the top 200 on both dividend yield and quality, as determined by return on equity, accruals ratio, and leverage. The strategy seems reasonable, but QDIV has only attracted $31 million in assets under management since its launch seven years ago. Its failure to resonate with investors has me curious. I found QDIV's weighting scheme to be the most likely culprit, and based on early reports from Global X, it looks like the decision to equal-weight components was flawed.
On Wednesday, Global X expanded its lineup of ETFs with the launch on the NYSE of two new funds. Both the MLP & Energy Infrastructure Covered Call ETF (MLPD) and the S&P 500 Quality Dividend Covered Call ETF (QDCC) use covered call strategies.
Both QDIV and SCHD invest in large-cap U.S. stocks that pay dividends, but they have different selection criteria and weighting methods, with SCHD having a lower expense ratio and higher dividend yield. QDIV has a lower price-to-earnings ratio and pays dividends monthly, while SCHD pays quarterly; SCHD has realized a higher total return since August 2018. Analysis of the underlying indices of both ETFs shows they outperform the S&P 500, especially during down markets, with QDIV potentially offering higher returns over a 24-year period.
The Schwab U.S. Dividend Equity ETF remains a superior quality dividend ETF compared to the Global X S&P 500 Quality Dividend ETF, mainly due to SCHD's 5-year dividend growth track record requirement. SCHD also has a lower expense ratio and a higher dividend yield than QDIV, making it a more attractive investment option. Despite some advantages of QDIV, such as a lower P/E ratio and monthly dividend payout schedule, SCHD continues to be the preferred choice for dividend growth investors.
QDIV invests in high-quality, high-yield stocks assessed on past growth, payments, and other fundamental metrics. Dividend-focused securities rose in popularity last year as inflation stifled many companies' growth prospects.
Once upon a time, dividends played a starring role in equity markets—until 14 years of easy money whetted investors' appetite for risk and created a massive tailwind for unprofitable, long-duration growth stocks. Valuations appear to be attractive: Stocks yielding north of 2.5% are trading near their largest discount to the equity market in recent memory.