“An equity contract has value because it provides a stream of dividends in the future. The value of the equity is the discounted value of these dividends, admitting the possibility that the company will stop paying dividends altogether and adjusted for risk preferences,” according to the research paper Dividend Swaps as Synthetic Equity by Joseph Clark.
Boiling dividend growth down into a single security while stripping out equity exposure as DIVY does could prove rewarding. As Reality Shares data highlights, S&P 500 dividend growth has offered better than double the returns of the benchmark U.S. index’s price returns going back to the start of 2000.
The new ETF charges 0.85% per year.
Chart Courtesy: Reality Shares
ETF Trends editorial team contributed to this post.