Company stocks that issue high yields may be masking their distressed books or may not be sustainable and are heading for dividend cuts. On the other hand, these quality dividend ETFs try to limit the impact of these value traps by selecting components based on a history of sustainable dividend growth.
To that end, HDV allocates less than 14% of its combined weight to high-yielding utilities and telecom stocks. Interestingly, the ETF’s largest sector weight is 20.7% to energy, the sector that has seen the most negative dividend action over the past year. However, HDV’s largest energy holdings are Dow components Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX), companies that have not been dividend cutters.
“The expense ratio for HDV is 0.12%, well below the large-value category average of 0.32%. The 12-month dividend yield as of May 2016 is 3.6%. The fund’s five-year average annualized return is 11.85%, outperforming the category average of 10.89%. As of mid-May 2016, the fund was up 8.42% year to date (YTD), which was much better than the category average 3.85%,” adds Investopedia.
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iShares Core High Dividend ETF