The Ins and Outs of Pricey Dividend ETFs

Exchange traded funds with an emphasis on dividends have become increasingly popular. Not to mention dividend ETFs contributed a substantial portion of the growth experienced by smart beta or intelligent index ETFs.

But all dividend ETFs are not created equal and some sport higher expense ratios that can erode yields and total returns. Cost-conscious income investors need to be aware of this scenario with ETFs such as the First Trust Value Line Dividend Index Fund (NYSEArca: FVD).

FVD’s holdings are pulled from a universe of stocks that have rankings of 1 or 2 in the Value Line Safety Ranking System. From there, Value Line “selects those companies with a higher than average dividend yield, as compared to the indicated dividend yield of the Standard & Poor’s 500 Composite Stock Price Index,” according to First Trust.

Related: Low U.S. Interest Rates Boost International Dividend ETFs

FVD debuted in August 2003, making it one of the oldest dividend ETFs on the market, but the fund remains expensive compared to its rivals. The ETF charges 0.7% per year, or $70 for each $10,000 invested. FVD allocates over a quarter of its weight to the utilities sector, saw it is benefiting this year as interest rates decline.


Although FVD is pricey relative to some of its competitors, investors have plowed over $1.7 billion into the fund, helping it more than double in size over the past two years.