What is TBG? (Pros, Cons, and Strategies)

If you are planning for a financially secure retirement, diversifying your investment portfolio with dividend-focused ETFs can be a wise move. Among various options, one burgeoning choice is the "TBG Dividend Focus ETF." In today's post, we'll explore exactly what TBG is, its advantages and disadvantages, and some effective strategies to maximize your investment.

What is TBG?

TBG stands for Terra Bella Growth Dividend Focus ETF. It is an investment vehicle designed to provide investors with exposure to dividend-paying stocks while emphasizing both dividend yield and growth.

TBG tracks the Terra Bella Dividend Growth Index. The index consists of companies known for reliable and increasing dividend payments. Unlike typical dividend ETFs that might include high-yield but volatile stocks, TBG aims to strike a balance, focusing on companies that can consistently increase their dividends while maintaining financial stability.

Key Features of TBG

• Companies with a minimum of 7 consecutive years of dividend payments
• Companies with a market cap of at least $1 billion
• Companies with an average daily trading volume of at least $1.5 million over three months

The ETF filters stocks based on four fundamental criteria: cash flow to debt ratio, return on equity, annual dividend yield, and 3-year dividend growth rate. After this filtering, the top 75 companies are selected and included in the ETF.

TBG Composition

TBG comprises financially robust companies across various sectors, including tech giants like Microsoft (MSFT), consumer staples like Procter & Gamble (PG), and energy players like ExxonMobil (XOM). The strategy is to be less exposed to sectors with high volatility, thereby ensuring a more stable and predictable dividend income.

Pros of TBG

Balanced Dividend Approach

One of the primary advantages of TBG is its balanced approach to dividends. It doesn't only focus on high-dividend stocks but rather emphasizes companies with a sustainable and growing dividend policy. This balanced approach has resulted in steady dividend growth over the past few years.

For investors looking to ensure a reliable income stream in retirement, companies that can increase their dividends annually provide added security and predictability.

Low Expense Ratio

TBG offers a relatively low expense ratio of 0.08% per year. This is crucial for long-term investors because lower fees can significantly elevate net returns over time, making it a cost-effective investment vehicle.

Diversified Sector Exposure

TBG’s diversified sector exposure results in less volatility compared to ETFs focused on specific sectors like technology or finance. This diversification provides a stable investment horizon interesting for investors wary of putting too many eggs in one basket.

Cons of TBG

Moderate Dividend Yield

While TBG offers a balanced approach to dividends, it does come with a moderate dividend yield, usually hovering around 2.8% to 3.2%. This is lower than some high-dividend ETFs but is a trade-off for more stable and predictable returns.

Not Ideal for Short-term Gains

TBG shines in its long-term reliability, but it isn’t made for those seeking short-term gains. The ETF’s strategy is constructed around long-term dividend growth, making it less suitable for investors looking to make a quick buck in a few years.

TBG Investment Strategy

TBG might not cater to everyone, particularly short-term investors, given its emphasis on long-term growth and moderate yield. However, it holds several advantages for those planning their financial future over a longer period, especially for retirement.

Long-term Investment Strategy

Investing in TBG requires a commitment to the long-term. Given its focus on dividend growth companies, at least a 10-year investment horizon is recommended. This allows investors to benefit from the compounding growth of dividends.

For those with less than a decade to invest, higher yield, short-term focused ETFs may be more suitable. Conversely, if you’re eyeing a comfortable retirement in 10-20 years, TBG should be a prime consideration in your portfolio.

Leveraging the Compound Effect

Consistent investment in TBG and reinvesting the dividends can significantly boost your portfolio through the power of compounding. Regular investment and dividend reinvestment will grow your assets over time, providing a stable and growing income stream suitable for retirement funding.

By effectively leveraging these strategies, you can make the most of what TBG offers, ensuring a more secure and prosperous financial future.

In Summary, TBG provides a balanced and stable approach to dividend investing, suitable for long-term investors focused on generating a reliable income stream for retirement.