Are Dividends A Trader’s Best Friend?
Most investors know that dividends or, more specifically, reinvesting dividends, is key to a long-term investing strategy.
But based on the ratings of a number of ETFs that track stocks with healthy dividends, these dividend-payers could be signalling potential short term opportunity for short term, swing traders, as well.
Heading into trading on Tuesday, three of the highest rated exchange-traded funds in our database are funds that consist of top, dividend-paying stocks. While longer term investors seek out such funds for the boost that dividends can provide their portfolios over time, short term traders can take advantage of the selling in these stocks to begin scaling in to the funds that count these stocks among their biggest holdings.
For example, earning ratings of 9 out of 10 ahead of Tuesday’s session is the First Trust Morningstar Dividend Leaders Index Fund ETF (FDL). FDL has closed lower for three out of the past four trading days – all four in oversold territory. Now trading at 20-day lows, FDL includes among its holdings AT&T (T), Johnson & Johnson (JNJ) and Southern Company (SO).
Also down for three out of the past four trading days is the iShares Dow Jones Select Dividend Index Fund ETF (DVY). DVY is back trading below its 200-day moving average after Monday’s sharp sell-off, but managed to finish well off session lows. Among the fund’s holdings are such dividend-payers as VF Corp (VFC), Chevron Corp (CVX), and McDonalds (MCD). Of the three, both VFC and MCD are trading above the 200-day.
Another ETF option for traders looking to take advantage of upgraded ratings in the sector is the PowerShares High Yield Equity Dividend Achievers Portfolio ETF (PEY).
PEY includes among its holdings companies like CenturyLink (CTL) and Pitney Bowes (PBI). Like the other ETFs in today’s report, the fund has finished lower for three out of the most recent four sessions, and pulled back sharply ahead of trading on Tuesday. The fund finished lower by more than 2% in Monday’s session.
With regard to PEY’s holdings, shares of CTL are trading in a range just below their 200-day moving average, while shares of PBI fell to new, 52-week lows.
The ETFs in today’s report were drawn from the data and research available through PowerRatings. To find out more, click here.
David Penn is Editor in Chief of TradingMarkets.com