Dividend stocks as a hot play in the fall because of the Fed and interest rates

More investors appear to be eyeing dividend stocks ahead of the Federal Reserve’s September interest rate decision.

Paul Baiocchi of SS&C ALPS Advisors thinks it’s a sound strategy as he sees the Fed loosening rates.

“Investors are moving back to dividends in money markets, fixed income, but also, importantly, leveraged companies, which could be rewarded by a declining interest rate environment,” ETF chief strategist told “ETF Edge” on CNBC this week.

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

Relative to S&P 500both dividend ETFs are overweight health, Finance and industriallyaccording to Baiocchi. ETFs exclude energy, immobility and materials. He refers to the groups as three of the most volatile sectors in the market.

“Not only do you have price volatility, but you have fundamental volatility in those sectors,” Baiocchi said.

He explains that this volatility would undermine the objective of OUSA and OUSM, which is to avoid draws.

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

Mike Akins, founding partner of ETF Action, sees OUSA and OUSM as defensive strategies because stocks generally have clean balance sheets.

He also notes that the dividend category in ETFs has grown in popularity.

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