As has been noted numerous times, 2014 has been another memorable year for dividend stocks and the exchange traded funds that hold those shares.
When it comes to dividend ETFs, however, the leaders of the pack share something in common: A large weight to the utilities sector. With 10-year Treasury yields off 25.6% and various bouts of market volatility giving investors reason to embrace stodgy, high-yielding utilities, the sector is poised to be the top performer in the S&P 500 this year.
With just a few trading days left in 2014, the Utilities Select Sector SPDR (NYSEArca: XLU) enjoys a healthy lead over the Health Care Select Sector SPDR (NYSEArca: XLV) for top honors among the nine sector SPDRs while dividend ETFs with sizable utilities weights have been noteworthy performers as well. [Soaring Dividend ETFs With Big Utilities Weights]
That group includes the Global X SuperDividend U.S. ETF (NYSEArca: DIV), which has gained nearly 13% this year. DIV follows 50 of the highest dividend yielding equity securities in the U.S. and equally weights its components. The fund allocates 21.4% of its weight to utilities, its largest sector allocation.
The fund also includes a low-volatility filter to diminish volatility in the portfolio. Specifically, underlying holdings must have a beta of less than 0.85 relative to the S&P 500 to be included in the index. Beta is a measure of volatility, and stocks with 1 reading reflects perfect correlation, so anything below 1 suggests the security is less volatile than the market. [A Dividend ETF Right for the Times]
Interestingly, DIV’s payout shrank during its first 16 months on the market, but the good news it has recently been rising, DIV’s dividend is paid on a monthly basis.