Dividend ETFs Are Not All The Same
November 9th 2011 at 2:55pm by Tom Lydon
With the yields in the Treasuries market at historic lows, dividend stock exchange traded funds (ETFs) have attracted the attention of investors. But with so many to choose from, fund providers seeking to enter this ETF space will have to have a leg up on the competition.
For example, the Schwab U.S. Dividend Equity ETF (NYSEArca: SCHD), which launched last month, holds stocks with healthy yields but also screens for strong underlying fundamentals, writes John Prestbo MarketWatch. [Schwab Expects ‘Good Demand’ for New Dividend ETF]
The new dividend fund will have to compete with established contenders, such as the iShares Dow Jones Select Dividend Index (NYSEArca: DVY) Vanguard Dividend Appreciation ETF (NYSEArca: VIG) and SPDR S&P Dividend (NYSEArca: SDY), which combined make up four of every five dollars in the dividend fund space.
The Schwab dividend ETF is based on the Dow Jones U.S. Dividend 100 Index, which holds companies that have generated 10-years of consecutive dividend payments and then screened by cash-flow to total debt, return on equity, dividend yield and five-year dividend growth rate. Component holdings are rebalanced annually in March.
The iShares ETF tracks the Dow Jones U.S. Select Dividend Index, which excludes stocks with less than five years of dividend payments, negative dividend growth over the last five years, a ratio of per-share dividends-to-earnings of 60% or more and trading volume of less than 200,000 shares per day over the past three months. Component holdings are rebalanced annually in December. DVY has a 12-month yield of 3.26%.
The Vanguard ETF is based on the Mergent Dividend Achievers Select Index, which holds high-yielding stocks that have raised dividends each of the past 10 years or more. Component holdings are rebalanced annually in January. VIG has a 12-month yield of 2.14%.
The SPDR ETF follows the S&P High Yield Dividend Aristocrats Index, which holds the highest-yielding stocks in the S&P Composite 1500 that have raised dividends consistently for the last 25 years or more. Components are rebalanced annually in December. SDY has a 12-month yield of 3.26%.
Along with the differences in each of the funds’ indexing methodologies, each fund has varying risk-adjusted returns and sector concentrations.
iShares Dow Jones Select Dividend Index
For more information on dividend paying funds, visit our dividend ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.