Dividend exchange traded funds are one of the fast-growing sub-segments of the ETF universe as measured by both asset growth and population. Low interest rates have sent investors flocking to dividend funds and ETF issuers have met that demand with a growing lineup of new income-focused products.
“With many yield-starved investors turning to dividend stocks as a way to cope with record low interest rates, equity-income focused ETFs have gathered $62 billion since January 2010, bringing the category to an impressive $87 billion in assets at the end of June,” according to iShares, the world’s largest ETF issuer. “The number of dividend ETFs (166 at the end of June) has grown 75% year-to-date, outpacing the 57% increase in number of fixed income ETFs and the 37% increase in total ETFs created during the same time period.” [iShares: The Impact of Rising Rates on Dividend ETFs]
Some of the largest dividend ETFs have close to or well over $10 billion in assets. Combine that with the dizzying array of new income funds coming to market and it is not surprising a few dividend ETFs get lost in the shuffle. However, “less popular” does not mean a dividend ETF is not worthy of consideration. Take the First Trust Value Line Dividend Index Fund (NYSEArca: FVD) is a prime example of an unheralded, but successful dividend ETF.
When accounting for reinvested dividends, FVD is up nearly 60% in the past three years. In an effort to compete with older, more established funds, some new dividend ETFs have increasingly blurred the line between active and passive management by using sophisticated indices and screening methodologies. That is not the case with FVD, which is firmly entrenched as an “old guard” dividend ETF. [Dividend ETFs 2.0]
Although FVD is just a few days shy of its tenth birthday, the fund is not built on the dividend increase streak methodology that is used by other, well-established dividend ETFs. Rather, FVD’s 158 holdings are culled from a universe of stocks that have Value Line safety ratings of one or two. From there, selects those companies with a higher than average dividend yield, as compared to the indicated dividend yield of the Standard & Poor’s 500 Composite Stock Price Index, according to First Trust.
Companies with less than $1 billion in market value are excluded and the result is a familiar sector lineup that devotes 43% of its combined weight to utilities and staples names. Since dividend increase streaks do not factor into FVD’s primary weighting methodology, the ETF offers decent exposure to financial services and technology names with those sectors combining for about 21% of the fund’s weight.
No holding receives a weight above 0.7%. Top-10 holdings include Raytheon (NYSE: RTN), Air Products (NYSE: APD) and Apple (NasdaqGM: AAPL). FVD has a 30-day SEC yield of 2.58%.
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of Apple.
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.