When it comes to dividend investment strategies, exchange traded fund investors are spoiled for choice. Consequently, new dividend ETF investors should look under the hood and take the time to better understand how the products work.
According to Morningstar data, of the 1,660 U.S.-listed ETFs on the market, 95 of the offerings focus on dividends, which make the investment category the most popular in the equity space, reports Rosalyn Retkwa for Institutional Investor.
Despite the amount of options available, ETF providers continue to craft new variations on the dividend theme, expanding out from passive index dividend ETFs to actively managed and smart-beta index-based alternatives. The way the strategies are constructed can differ drastically and the end investor would see varying returns.
For instance, the Cambria Shareholder Yield ETF (NYSEArca: SYLD), an actively managed option, focuses on yield generation, but the ETF also targets businesses that buy back their company shares and diminish debt. Mebane Faber, one of SYLD’s portfolio managers, argues that investors shouldn’t ignore the cash infusion from buybacks. SYLD has a 1.74% 12-month yield.
Additionally, the AdvisorShares Athena High Dividend ETF (NYSEArca: DIVI) takes an interesting approach to dividend stocks, selecting all manner of yield generating equities that have already been vetted by active mutual fund managers. Specifically, the active manager C. Thomas Howard, CEO and director of research at AthenaInvest, uses behavioral finance to identify high-conviction picks from fund managers. The ETF also has a broad scope and can include both domestic and international positions. DIVI has a [Different Strokes With Dividend ETFs]
Company and sector weightings also matter. For example, the Global X SuperDividend ETF (NYSEArca: SDIV) has outperformed many of its peers and comes with a 3.58% 12-month yield. The fund’s outperformance may be attributed to its heavy tilt toward utilities and real estate, which make up 21.3% and 17.7% of the portfolio, respectively. The fund does not specifically target these sectors but still capitalized on the performance due to the way it focuses on high-yielding stocks.
The WisdomTree U.S. Dividend Growth Fund (NasdaqGM: DGRW) provides investors with a forward-looking investment strategy, tracking new and up-and-coming dividend payers that have high expected earnings growth, as future dividends must be funded from cash flows companies generate. DGRW has a 1.86% 12-month yield. The recently launched iShares Core Dividend Growth ETF (NYSEArca: DGRO) also screens for recent dividend growth and sustainability of such growth. DGRO shows a 30-day SEC yield of 2.24%. [New Dividend ETFs Offers Core Growth]
For more information on dividend stocks, visit our dividend ETFs category.
Max Chen contributed to this article.