Year-to-date, the Utilities Select Sector SPDR (NYSEArca: XLU) is the top performer among the nine sector SPDR ETFs and the race is not even close.
XLU entered Monday with a 16.2% year-to-date gain, an advantage of 470 basis points over its nearest competitor, the Health Care Select Sector SPDR (NYSEArca: XLV). The utilities sector has traditionally acted as a safe-haven destination and that durability has been on display in recent weeks. Over the past month, XLU is up 2.4% while the S&P 500 is down more than 5%.
Of course, another reason why utilities ETFs remain popular with investors is yield. As of Oct. 17, XLU had a dividend yield of 3.47%, or about 120 basis points above the yield on 10-year U.S. Treauries.
Still, some investors do not want the “all in” commitment of a dedicated utilities ETF. Good news: There are plenty of dividend ETFs that feature both tempting yields and robust utilities sector exposure. The better news is that due to the utilities sector’s strength this year, some of the following ETFs have offered superior returns to dividend ETFs that are light on utilities names.
Let’s get started with the…
RevenueShares Ultra Dividend Fund (NYSEArca: RDIV)
Utilities weight: 36.5%
Trailing 12-month yield: 2.39%
Comment: It is nearly impossible to beat RDIV’s utilities weight without going to a dedicated utilities ETF. That is perhaps the best explanation for why RDIV is up over 10% this year, a gain that is two and a half times that of the S&P 500.
RDIV is comprised of 60 stocks from the S&P 900, ranked by the average 12 month trailing dividend yield in each of the previous trailing four quarters, according to RevenueShares. Nearly two-thirds of the ETF’s 60 holdings have dividend increase streaks of at least five years.
iShares Select Dividend ETF (NYSEArca: DVY)
Utilities Weight: 34.9%
Trailing 12-month yield: 3.16%
Comment: DVY is not only the second-largest U.S. dividend ETF with $13.8 billion in assets under management, it also features one of the largest utilities allocations among dividend ETFs. That has helped drive a year-to-date gain of nearly 5%. DVY’s utilities exposure has been meaningful in another way. This year, the ETF has hauled in $677.5 million in new assets compared to just $17.6 million for the rival Vanguard Dividend Appreciation ETF (NYSEArca: VIG).
PowerShares S&P 500 High Dividend Portfolio (NYSEArca: SPHD)
Utilities weight: 19.3%
Trailing 12-month yield: 3.47%
Comment: SPHD is not a utilities goliath on par with RDIV or DVY, but the PowerShares offering has its own advantages, including a savvy mixture of low volatility high-yielding stocks. SPHD tracks the S&P 500 Low Volatility High Dividend Index, which is comprised of 50 stocks taken from the S&P 500 that have historically exhibited high dividend yields and low volatility.
That has helped SPHD gain almost 9% this year and over the past month, the ETF has pulled in $10.6 million of its $185 million in assets under management. Oh yeah, SPHD pays a monthly dividend, too. [The Right Dividend ETF for These Tumultuous Times]
WisdomTree Dividend ex-Financials Fund (NYSEArca: DTN)
Utilities Weight: 18.2%
Distribution yield: 3.99%
Comment: Speaking of monthly dividends, DTN delivers that as well. The $1.1 billion ETF has jumped 5.6% this year, an impressive run considering its almost 12% weight to the energy sector, the S&P 500’s worst performer.
As its name implies, DTN excludes the financial services sector from its lineup. Although that sector has rebound from the dark days of 2008 and has gotten back to dividend growth over the past several years, DTN has not been hindered by excluding bank stocks. In fact, DTN has been one of the best U.S. dividend ETFs since the March 2009 market bottom. [A Dividend ETF That Likes Low Interest Rates]
First Trust Morningstar Dividend Leaders Index Fund (NYSEArca: FDL)
Utilities Weight: 24.5%
Trailing 12-Month Distribution: 3.35%
Comment: FDL is up 6.4% this year. Throw in a 19.6% weight to telecom stocks, nearly all of which is allocated to Dow components AT&T (NYSE: T) and Verizon (NYSE: VZ), with that 24.5% utilities weight and it is easier to understand why.
FDL tracks the Morningstar Dividend Leaders Index. That index “captures the performance of 100 highest yielding stocks that have a consistent record of dividend payment and have the ability to sustain their dividend payments,” according to Morningstar.
First Trust Value Line Dividend Index Fund (NYSEArca: FVD)
Utilities Weight: 27.1%
Trailing 12-month Distribution: 2.52%
Comment: For an alternative to a dedicated utilities ETF, it is hard to knock FVD. For the investor looking for a dividend ETF with a long track record, it is also hard to knock FVD as the ETF recently turned 11 years old. And it is hard to knock FVD’s 6% year-to-date gain. The knock on FVD is its 0.7% annual fee, which is pricey relative to rival dividend ETFs.
iShares Core High Dividend ETF (NYSEArca: HDV)
Utilities Weight: 12.2%
Trailing 12-month yield: 3.15%
Comment: On the other side of the cost ledger is the iShares Core High Dividend ETF. As a result of its recent addition to the iShares core lineup, the ETF’s annual fee is just 0.12%. Its utilities exposure is comparatively low to the rest of the funds featured here at just over 12%, but that is enough to make the group HDV’s fourth-largest sector weight. That has been enough for HDV to beat the S&P 500 with a 5.2% year-to-date gain.
Tom Lydon’s clients own shares of DTN and DVY.