Selecting companies based on their history of paying is backward-looking and doesn’t account for their future prospects.
Consideration of fair value may allow for a portfolio of better valuations and greater upside potential while maintaining an attractive dividend yield.
Selecting companies with the lowest probability of default helps reduce the probability of future dividend cuts.
courtneyk/E+ via Getty Images Approach dividend investing from a position of strength. Chasing the highest-yielding stocks can lead investors to “dividend traps” and companies unable to sustain payouts. Selecting companies based on their history of paying is backward-looking and doesn’t account for their future prospects.
Beyond selecting companies with a high dividend yield, forward-looking assessments of a company’s current valuation and financial health are key components to the long-term durability of dividend pay-outs and growth potential. High Dividend Yield Potential at a Better Value
Morningstar’s estimate of a company’s intrinsic value, their Fair Value estimate, incorporates an assessment of the company’s economic moat and a projection of the sustainability of its profit potential over time. Consideration of fair value may allow for a portfolio of better valuations and greater upside potential while maintaining an attractive dividend yield. Yield at a Better Value
One-Year Average as of 6/30/2021 Source: Morningstar. Index performance is not representative of fund performance. For fund performance current to the most recent month end, visit vaneck.com. For illustrative purposes only. Past performance is no guarantee of future results. Reduce Potential Dividend Cuts
Distance to Default, Morningstar’s measure of financial health and gauge of future distress, reflects a firm’s likelihood of bankruptcy and has historically been an effective predictor of dividend cuts. Selecting companies with the lowest probability of default helps reduce the probability of future dividend cuts. Higher Distance to Default Scores Resulted in Fewer Dividend Cuts
Nov. 2015 – Nov. 2019 Source: Morningstar. U.S. companies in the Morningstar Global Markets Index were assigned to quartiles at the beginning of the period based on the likelihood of default using Morningstar’s Distance to Default scoring system. Those companies with the highest likelihood of default (“Very Low” Distance to Default scores) had the highest occurrence of subsequent dividend cuts. The inverse is also true. For illustrative purposes only. Past performance is no guarantee of future results.
VanEck Morningstar Durable Dividend ETF ( DURA ) seeks to replicate as closely as possible the Morningstar ® US Dividend Valuation Index SM , which is intended to track the overall performance of high dividend-yielding U.S. companies with strong financial health and attractive valuations according to Morningstar.
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Morningstar ® US Market Index SM covers the top 97% of market capitalization of the U.S. equity markets.
Morningstar ® US Dividend Valuation Index SM is designed to provide exposure to securities in the Morningstar US Market Index that have high dividend yield, strong financial health, and attractive uncertainty-adjusted valuation.
Morningstar ® US Dividend Composite Index SM is a broad benchmark that consists of securities that pay qualified income, screened for dividend consistency and sustainability.
The Morningstar ® US Dividend Valuation Index SM was created and is maintained by Morningstar, Inc. Morningstar, Inc. does not sponsor, endorse, issue, sell, or promote the VanEck Morningstar Durable Dividend ETF and bears no liability with respect to the ETF or any security. Morningstar ® is a registered trademark of Morningstar, Inc. Morningstar US Dividend Valuation Index are service marks of Morningstar, Inc.
The information herein represents the opinion of the author(s), but not necessarily those of VanEck, and these opinions may change at any time and from time to time. Non-VanEck proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed. VanEck does not guarantee the accuracy of third party data. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Historical performance is not indicative of future results. Current data may differ from data quoted. Any graphs shown herein are for illustrative purposes only. No part of this material […]