CFRA rates equity ETFs and mutual funds separately, using a combination of holdings-level analysis and fund attributes, Rosenbluth said.
“With ETFs, we focus more on what is inside and less on past performance,” he said. “Unlike index-based ETFs, actively managed dividend funds incorporate dividend attributes as well as the valuation of the company’s stock.”
Rosenbluth highlighted two mutual funds rated five stars by CFRA: the Franklin Rising Dividends Fund (FRDPX) and the aforementioned T Rowe Price Dividend Growth Fund.
T Rowe Price recently launched an actively managed, semi-transparent ETF version of that mutual fund’s strategy. “We see many overlapping positions in the tracking basket of T Rowe Price Dividend Growth ETF,” Rosenbluth said.
“While the future of dividend growth remains uncertain due to the impact of Covid-19, investors can benefit from the diversification ETFs and mutual funds provide to offset the risk of potentially negative dividend actions,” he added.
For additional context, there were only 102 negative dividend actions—cuts or suspensions—taken by U.S. companies in the third quarter, a significant decrease from the 639 that occurred a quarter earlier, according to S&P Dow Jones Indices.
Meanwhile, there were 309 positive dividend actions—increases or initiations—in the third quarter, up from 244 in the prior period. The positive/negative third quarter spread improved to 3.0, from 0.4, and is much more in line with July-September dividend data in the prior five years, Rosenbluth said.
However, there is still room for improvement in 2021 for companies to get back to 2019’s 4.5 level “as the U.S. economy likely recovers and companies adjust their operations to the new normal,” he said.