All eyes were on the Fed last week. They decided to keep rates unchanged and while not many were expecting a rate increase in this meeting, the probability of rates hikes later this year had gone up substantially of late as the recent economic data has been better than expected.
FOMC members however reduced their forecasts for rate hikes in the coming months. After increasing short term rates in December, they had penciled in four rate hikes for 2016 but their current projections show just two rate hikes.
After the Fed meeting it’s clear that rates are going to stay lower for longer. This outlook benefits dividend paying companies as income seeking investors flock to them. Further due to high level of uncertainty, volatility is expected to remain high. Most dividend paying companies are high quality, stable companies with solid cash flows and these tend to do well during periods of high market uncertainty. (Read: How You can Beat the Market with Dividend Aristocrat ETFs)
While some energy companies have cut their payouts, many other companies have been raising dividends with improving economic fundamentals. Some companies are even taking advantage of low interest rates to boost their payouts to shareholders.
Additionally, there are activist campaigns for raising dividends and buybacks. Per FactSet, there were 70 such activist campaigns in 2015; higher total ever since they started began tracking the data in 2005.
In this short video, we have highlighted two ultra-cheap ETFs–Vanguard Dividend Appreciation ETF (VIG – ETF report) and iShares Core Dividend Growth ETF (DGRO – ETF report)–that hold high quality, dividend growing companies. Both these ETFs are currently Zacks Rank #2 (Buy) ETFs.
Video lengh: 00:06:31
