FYI: Last December in the midst of a corporate credit meltdown, we penned an article on ETF.com, “Growing Risk In Dividend Focused ETFs,” where we warned how investors in dividend-focused funds could be at risk as overleveraged companies would go on a balance sheet diet lest they lose their investment-grade rating (so-called fallen-angel risk).
In the article, we posited that the Federal Reserve, having expressed early signals of a dovish pivot away from raising interest rates (a Fed “pause”), “would open a window for over-leveraged corporations to improve their balance sheets through lender-friendly capital decisions at the expense of shareholder-friendly activities.”
As stocks and corporate credit were selling off throughout the fourth quarter in 2018, the income-focused risk/reward was shifting from dividend-paying strategies to corporate credit.
Regards,
Ted
https://www.etf.com/sections/etf-strategist-corner/dividend-risk-falling-rates?nopaging=1
