As investors are continuing to pivot away from growth and toward value investments, the search for high dividend yields continues.
When considering investing in an equity income fund, it’s important to consider the management as the merit between competing funds varies and it’s possible to generate dividends through sleight of hand, which is dangerous and unsustainable.
The FlexShares Quality Dividend Index Fund (QDF ) is a strong option when looking for a sustainable dividend yield. The fund, which is 10 years old and has $1.6 billion in assets under management, has an expense ratio of just 37 basis points and offers an annual dividend yield of 1.86%.
QDF spins a portfolio of high-quality dividend stocks; its prudent approach and cost advantage should help it outperform the Russell 1000 Value Index over the long run, according to Ryan Jackson, associate analyst, Morningstar.
QDF is part of FlexShares’ stable of proprietary twists on factor investing. The fund follows a Northern Trust index that selects dividend-paying large-cap U.S. equities, and then the index weights the portfolio toward companies that earned the highest “dividend quality” scores, according to ETF Database.
To prevent unintentional concentrations, the methodology caps the weighting of individual securities, industry groups, sectors, and styles.
This fund tracks the Northern Trust Quality Dividend Index, which builds its portfolio with three objectives: deliver higher yield than the broad market, maximize exposure to the quality factor, and match the level of market sensitivity of the Northern Trust 1250 Index. Pursuing yield can be a risky endeavor because the highest-yielding stocks often have weak fundamentals and sinking valuations. This fund’s quality focus allows it to sidestep this risk while still meeting its yield objective, according to Morningstar.
The approach to market beta is the nuance that sets it apart from its sister funds FlexShares Quality Dividend Defensive Index Fund (QDEF ) and FlexShares Quality Dividend Dynamic Index Fund (QDYN ), which aim to reduce or exceed market swings, respectively, according to ETF Database.
This fund has a track record of strong returns, outpacing the Russell 1000 Value Index by 72 basis points from its inception in December 2012 through March 2021 – while posting lower volatility than the Morningstar Category benchmark, according to Morningstar.
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