As of mid-December, dividend exchange traded funds had hauled in $27.6 billion, more than double the $13.1 billion raked in by payout ETFs in 2012.
Amid low interest rates, income investors have relied on dividend stocks and ETFs as bond alternatives. “I think the right place to be now and over the next 10 years will generally be in equities, not at the exclusion of bonds, but not without being selective and flexible, strategic and tactical about the types of bonds you own, the role they play in your portfolio (as a stock market buffer and/or as a source of reliable income) and the duration that you hold one offering or another,” writes Jim Lowell for Forbes.
Lowell went on to highlight four dividend ETFs that he currently favors, including the First Trust Value Line Dividend Index Fund (NYSEArca: FVD). Assuming dividends were reinvested, FVD is up 22.7% over the past year. As Lowell notes, FVD “seeks investment results that correspond to the price and yield performance of the Value Line Dividend Index, which is made up of stocks that are given a #1 or #2 in the Value Line Safety Ranking System. Each company in the index must have a market cap of more than $1 billion and make above average dividend payouts.”
The $796 million FVD does feature some interest rate risk as rate-sensitive utilities account for 25.4% of the fund’s weight and expensive consumer staples represent another 16.7%. FVD is able to deflect some of that rate risk with a combined 26% weight to industrial, technology and discretionary names. Those are among the best-performing sectors in rising rate environments. [A Low Vol Dividend ETF for Retirees]
The WisdomTree Dividend ex-Financials Fund (NYSEArca: DTN) was also highlighted. That ETF is up 23.6% over the past year when assuming dividends were reinvested. As its name implies, DTN excludes the financial services sector, which has been one of the leading sources of S&P 500 dividend growth over the past several years. However, DTN has a distribution yield of almost 4.3% and tech, discretionary and industrial names combine for nearly 31% of the fund’s weight. [Safe and Sleepy ETF Ideas for 2014]
Lowell also mentioned the iShares Select Dividend ETF (NYSEArca: DVY). With almost $12.7 billion in assets under management, DVY is one of the largest U.S. dividend ETFs. It also features one of the largest allocations to the utilities sector at 30.5%. That exposure has recently applied some pressure to DVY as 10-year Treasury yields have risen. DVY has a trailing 12-month yield of 3.1% and is home to 101 stocks. Its top-10 holdings represent just 20.9% of the fund’s weight. [Rising Rates Turn Some Dividend ETFs Into Laggards]
The $760.4 million WisdomTree Equity Income Fund (NYSEArca: DHS) was also mentioned in the piece. DHS is up 20.6% over the past year with dividends reinvested. Financials and consumer staples combine for a third of DHS’s weight. Like DTN, DHS charges 0.38% per year and pays its dividends monthly rather than quarterly.
WisdomTree Equity Income Fund
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of DTN and DVY.