Positive market sentiment, which is favoring an economic recovery as vaccination programs help business activity pick up, has spread to euro zone equities. Companies are eager to renew their commitments to return capital to shareholders through the dividend after having to suspend or cut them in 2020 due to the impact of the pandemic, he notes. Ana Councilor, Sales Director for Spain at SPDR.
The change in market climate began late last year and laid the groundwork for companies to reflect a more positive outlook in their 2021 earnings forecast. One of the areas where that impact was most profound was expectations. dividend, says the expert of the brand of ETFs of State Street Global Advisors.
A stable dividend strategy, such as the High Dividend Aristocrats indices that follow the range of ETFs offered by SPDR, aims to offer investors strong exposure to the yield factor through high-quality stocks with a broad sector distribution.
Dividends and their context
In the current earnings season, investors have learned a number of positive elements about future dividend estimates, with analysts’ projections and widespread optimism pointing to further business recovery, Concejero said. This environment could present an opportunity for investors in European ETFs to re-incorporate dividend strategies into their portfolios, as seen in the following chart:
The main arguments that support the possibility of increasing the exposure to the yield factor are the positive estimates of the analysts that reflect a significant upside potential of the euro zone dividends. Also increased business activity and, finally, relatively attractive valuations for euro area dividend stocks, which suffered significantly in 2020 and may benefit from further economic reflation.
“Although investor attitudes have become more positive towards dividend stocks, flows in ETFs have not yet kept pace with other factor exposures such as size (small cap) and value.”says Councilor. As Chart 2 shows, European Smart Beta investors have been investing in size and value ETFs since Q4 2020. Dividend ETFs Are Starting To Capture Flows As Portfolio Underweights Close: In March 2021 investors added $ 696 million of net inflows [1].
The index S&P® Euro High Yield Dividend Aristocrats is a stable dividend strategy that selects stocks that have maintained or increased the amount of their dividends per share each year for at least 10 consecutive years. By adding Euro Dividend Aristocrats to a portfolio, investors can increase exposure to those stocks that expect increased dividend yields. In addition, the strategy provides exposure to securities with lower leverage and a diversified approach to significant exposure to the yield factor.
The Euro Dividend Aristocrats Index uses a relatively balanced approach (see Chart 3) to select quality income. This allows the strategy the flexibility to go “where it is needed” to find quality revenue. This balanced approach is often preferred by investors looking to hedge against the broader structural headwind facing euro area equities.
Figure 3: FaCS Active Exposure Comparison (vs. EURO STOXX® Index)
Investment vehicles through SPDR ETFs
In a simple trade, investors who are optimistic about the economic momentum behind dividend stocks, and who are looking to add yield exposure to their portfolio, can gain the desired exposure through the SPDR® S&P® Euro Dividend Aristocrats UCITS ETF. This fund tracks the S & P® Euro High Yield Dividend Aristocrats Index, which offered an indicative return premium of 1.43% [2] on the EURO STOXX® index at the end of March. In the same way, the manager argues the benefits of this strategy with a focus on the US market, in a recently published document: Dividend Aristocrats – Playing the recovery in 2021.
For more detailed information on the Euro strategy You can also access the current analysis: Euro Dividend Aristocrats – Playing the recovery 2021.
All Dividend Aristocrats products
SPDR S&P Euro Dividend Aristocrats UCITS ETF
SPDR S&P U.S. Dividend Aristocrats UCITS ETF
SPDR S&P U.S. Dividend Aristocrats EUR Hdg UCITS ETF
SPDR S&P Global Dividend Aristocrats UCITS ETF
SPDR S&P Pan Asia Dividend Aristocrats UCITS ETF
SPDR S&P UK Dividend Aristocrats UCITS ETF
SPDR S&P Emerging Markets Dividend Aristocrats UCITS ETF
Sources
- Bloomberg Finance, as of 31 March 2021.
- State Street Global Advisors, FactSet, as of 31 March 2021.
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