Dividend stocks play a big role in the decline due to the Fed and interest rates

It appears that more and more investors are looking at dividend stocks ahead of the Federal Reserve’s September interest rate decision.

Paul Baiocchi of SS&C ALPS Advisors thinks this is a good strategy because he sees the Fed cutting rates.

“Investors are turning back toward dividends from the money markets, from fixed income, but especially to leveraged companies that could be rewarded by a falling interest rate environment,” the chief ETF strategist told CNBC’s “ETF Edge” this week.

ALPS is the issuer of several dividend-traded funds, including the ALPS O’Shares US Quality Dividend ETF (OUSA) and its counterpart, the ALPS O’Shares US Small-Cap Quality Dividend ETF (OUSM).

Relative to the S&P500are both overweight dividend ETFs healthcare, financial affairs And industryBaiocchi said. The ETFs exclude energy, property And materials. He calls the groups three of the most unstable sectors on the market.

“There is not only price volatility, but also fundamental volatility in those sectors,” Baiocchi said.

He explains that this volatility would undermine the purpose of the OUSA and OUSM, which is to prevent credit loss.

“You look for dividends as part of the methodology, but you look for dividends that are sustainable, dividends that have grown and are well supported by fundamentals,” Baiocchi said.

Mike Akins, the founder of ETF Action, considers OUSA and OUSM defensive strategies because the stocks generally have clean balance sheets.

He also notes that the dividend category in ETFs is becoming increasingly popular.

“I don’t have the crystal ball that explains why dividends are so popular,” Akins said. “I think people look at it as if you’re paying a dividend, and you’ve had a sense of viability for that company’s balance sheet for years.”