Dividend stocks provide investors with steady income stream and a hedge against a volatile environment. For those who are concerned about market swings, one dividend-themed exchange traded fund specifically targets the least risky stocks.
The First Trust Value Line Dividend Index Fund (NYSEArca: FVD), with $954.7 million in assets under management, is the oldest dividend ETF in existence, writes Matthew Sauer, Esq., for SeekingAlpha.
FVD tracks a Value Line Dividend Index, which ins comprised of a group of stocks that Value Line selects based on its Safety Ranking System. According to Value Line, the ranking system picks out factors like the 10-year trend relative earnings and prices, recent earnings and price changes, and earnings surprises. These factors are then combined to forecast the price change of each stock relative to the broader Value Line universe of stocks.
The ETF only tracks companies that have a 1 or 2 rank under the Safety Ranking System, with rank 1 stocks expected to be the best performers relative to the Value Line universe and rank 2 stocks expected to have better-than-average relative price performance.
Due to its focus on conservative or safer stocks, FVD is overweight defensive sectors, including utilities 27.2% and consumer staples 15.1%.
The safety-theme seems to be working out for the ETF as it has outperformed the broader markets over the long-term. Over the past 10 years, FVD has generated an average annualized return of 10.7%, compared to the S&P 500 index’s 8.0% average return. Year-to-date, FVD has increased 9.5% while the S&P 500 gained 7.9%.
Additionally, the underlying index cherry picks companies that have higher-than-average dividend yields compared to the S&P 500 index and weeds out companies with less than $1 billion in market-cap. The fund comes with a 2.52% 12-month yield.