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U.S. exchange-traded funds (ETFs) investing in dividend-paying Stocks have seen increased inflows following the Federal Reserve’s rate cut cycle. In September, 135 U.S. dividend ETFs attracted $3.05 billion, compared to an average of $424 million in the prior months of 2024. Investors are turning to these ETFs for income generation as yields are expected to decrease with further rate cuts by the Fed.

Nick Kalivas, from Invesco, notes that the shift in monetary policy has led cash to seek new investment opportunities, with dividend-yielding Stocks being a popular choice. However, the recent rise in benchmark 10-year Treasury yields could slow down the influx of funds into these ETFs.

Josh Strange of Good Life Financial Advisors of NOVA suggests that the renewed interest in dividend Stocks is also due to high valuations in sectors like tech and overall market trends. The S&P 500’s valuation is currently near a three-year high, with a concentration in a few sectors causing concern about overvaluation.

Dividend ETFs offer varying yields, typically ranging from just under 2% to 3.6%, with holdings in sectors like energy, finance, pharmaceuticals, utilities, and retailers. Companies like Chevron Corp., JP Morgan Chase, Exxon Mobil, Proctor & Gamble, Verizon, Southern Co, and Home Depot often feature in these ETFs.

Sean O’Hara, from Pacer ETFs, highlights the importance of balancing high dividend payouts with company growth potential. Pacer’s ETF portfolios, such as the Pacer US Cash Cows ETF, focus on companies with strong free cash flows to mitigate the risk of deteriorating fundamentals. The Pacer US Cash Cows ETF has seen significant inflows of $7.1 billion in the last year.

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