A dividend ETF can add both income and stability to a portfolio and serve as a complement alongside active and passive strategies. VettaFi Head of Sector & Industry Research, Roxanna Islam, recently moderated a webcast that highlighted this concept and featured Franklin Templeton’s VP, Head of U.S. ETF Product Strategy & Development, Todd Mathias, and New Frontier’s Co-Founder and Chief Investment Officer, Robert Michaud. In particular, the group covered potential portfolio outcomes from dividend investing and the pitfalls to avoid. The discussion touched on the Franklin International Dividend Booster Index ETF (XIDV) and the Franklin US Dividend Booster Index ETF (XUDV).
Referring to the potential role of dividend ETFs in an investor’s portfolio, Matthias stated, “I think they end up being quite a nice anchor in income solutions, a nice complement to other areas of the portfolios. Investors love seeing the [word]‘dividend’ in the name of one of their investments, and they love income, regardless of the rate environment.”
Michaud chimed in as a portfolio optimization expert, noting, “I have to say that really everything in a portfolio is important. So, it’s all about the trade-offs in terms of thinking about how important, how much do you want to focus on reliable income, how much do you want to focus on risk management, how do you put it together, how does long-term growth fit in there? I’m a big fan of trying to meet as many objectives as possible at the same time.”
Mathias pointed out that dividend investing isn’t just about collecting yields. It’s about managing risk and being intentional. Institutions have long understood that consistent and growing income can stabilize portfolios in times of volatility. As a result, dividends have often been used for defensive purposes.
Getting A Boost With XIDV and XUDV
“We think dividend equities are a great way of meeting future income needs because, as a portfolio, it’s highly reliable in terms of the income you expect to get is very similar to the income that you actually do receive from a well-diversified portfolio of dividend-paying stocks,” Michaud further asserted.
From there, the discussion turned to the usefulness of adding dividend ETFs to a portfolio. In particular, adding XIDV and XUDV to one’s holdings helped reduce the expense ratio overall by a couple basis points. In addition, the inclusion of those funds in a portfolio can lower its overall risk and substantially increase its dividend yield.
“These products launched right at the beginning of this year, so in the next couple of months, we will be approaching that one-year track record. [We’re] still seeing some incremental flow as well as healthy volume and tight spreads across these strategies,” Mathias said of the two funds.
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