Investors who rely on a steady income stream may be interested in a new Reality Shares exchange traded fund focusing on U.S. companies that are expected to increase dividends ahead.
The new Reality Shares DIVCON Leaders Dividend ETF (BATS: LEAD) begins trading tomorrow. The ETF has a 0.43% expense ratio and a dividend yield of 1.59%.
LEAD will try to reflect the performance of the Reality Shares DIVCON Leaders Dividend Index, which is comprised of high-quality large-cap U.S. companies with the highest probability of increasing dividends within a year, based on Reality Shares’ proprietary DIVCON dividend health scoring system.
“DIVCON Indexes are designed to capitalize on the theory that, over time, companies that consistently grow their dividends tend to have investment returns above the overall market,” according to Reality Shares.
The underlying index also employs a type of smart-beta strategy, focusing on seven quality factors including earnings, cash flow, dividend history, buybacks, growth, analyst forecasts and ratings to predict future dividend growth.
The DIVCON dividend scoring system is also a forward looking mechanism, as opposed to other dividend index funds that target company stocks based on trailing yields.
“Unlike many dividend indexes that focus solely on historic dividend growth or yield, the DIVCON indexes are engineered to track the performance of companies projected to grow or cut their dividends in the future,” according to Reality Shares. “Most importantly, by focusing on dividends and future dividend growth, the index constituents are biased toward higher quality.”
As of December 18, LEAD’s sector tilts include consumer discretionary 28.7%, industrials 28.3%, information technology 11.6%, consumer staples 11.3%, healthcare 8.6%, financials 5.7%, energy 2.9% and materials 2.8%.
Top components include Starbucks (NasdaqGS: SBUX) 3.0%, Broadcom (NasdaqGS: BRCM) 3.0%, Nike (NYSE: NKE) 3.0%, Visa (NYSE: V) 2.9% and Texas Instruments (NasdaqGS: TXN) 2.9%.
Looking ahead, investors may also want to watch out for Reality Shares’ DIVCON Dividend Defender ETF (DFND) and DIVCON Dividend Guard ETF (GARD), which both employ a type of long/short dividend equity strategy, next week.
Max Chen contributed to this article.