High interest rates – the condition investors have had to contend with for over two years now – can be a drag on dividend stocks and some of the related exchange traded funds. That’s particularly true of high payout strategies, many of which lean heavily into rate-sensitive sectors such real estate and utilities.
Relief could be on the way because speculation is intensifying that the Federal Reserve could lower interest rates at its September. Previously, the consensus wisdom held that the Fed would lower rates by 25 basis points in September, but following a weaker-than-expected July jobs reports, some experts believe the central bank could cut by 50 basis points to prop up the economy.
Either scenario could provide support to ETFs such as the WisdomTree US High Dividend Fund (DHS). The $1.12 billion DHS could have some advantages should the Fed enter in a new easing cycle. Those include favorable sector mix and some interesting historical precedent.
With Fed Help, DHS Could Thrive
DHS sports a 30-day SEC yield of 3.75%, but higher yields are available on some relatively safe fixed income funds (and cash) and that explains some of the lethargy faced by the ETF and high dividend stocks in general.
To its credit, DHS has managed to rise 8.57% year-to-date and the ETF could gain some momentum if the Fed pares rates because cash instruments and some bonds would lose luster relative to dividends stocks. There’s also some interesting history that could support the near-term case for DHS.
