The Case For Dividend Quality

The Case For Dividend Quality

Dividends have long been an important part of total return, serving as a stable base during times of market volatility, and satisfying investor demand for yield during periods of low interest rates.  Yet blindly chasing high dividends has led many investors astray.  A seemingly generous dividend can mask a company’s financial weaknesses.

Evaluation of dividend quality

FlexShares’ suite of Quality Dividend ETFs take a different approach. By using a multifaceted evaluation of dividend quality, FlexShares attempts to evaluate how well-positioned a company is to continue dividend payments under current or possibly varying market/economic conditions.

Here Are Bill Ackman’s Favorite Hedge Funds

Bill AckmanMany of the most well-known hedge fund managers in the world engage in philanthropy, and in doing so, they often reveal their favorite hedge funds through a review of their foundation's public filings. Bill Ackman's Pershing Square Foundation invested in several hedge funds during the fiscal years that ended in September 2019 and September 2020.

Instead of focusing solely on a company’s dividend history, the FlexShares team examines companies across three lenses:

  • Management Efficiency: How aggressive is management in the deployment of capital and their financing decisions?
  • Profitability: How much of a competitive advantage does the company have?
  • Cash Flow: Is the company able to fulfill its debt obligations and meet day-to-day liquidity needs?

By utilizing this process across a suite of six funds with varying risk targets, the FlexShares Quality Dividend process can meet a variety of portfolio diversification needs.

FlexShares has recently produced a paper explaining the process in more detail.

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