The iShares Select Dividend ETF (NYSEArca: DVY) is one of this year’s best-performing dividend exchange traded funds and it is possible that the giant dividend ETF adds to its 15.3% year-to-date gain.
The current environment has been especially favorable for DVY because the ETF allocates nearly 32% of its weight to utilities stocks, this year’s best-performing sector. That gives DVY one of the highest weights to utilities names of any ETF that is not a dedicated utilities fund. On a trailing 12-month basis, DVY yields north of 3.1%.
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On Wednesday, Federal Open Market Committee (FOMC) meeting minutes revealed the Fed is concerned about the U.S. labor market. That is prompting some traders to think an interest rate hike this year is nearly out of the question, a sentiment that is dollar negative. That is good new for DVY. In addition to its large weight to utilities stocks, the ETF also features a large allocation to consumer staples names, another high-flying but rate-sensitive sector.
[related_stories]“DVY provides investors, who seek consistent income, exposure to high dividend paying U.S. equities. As with the characteristics of stocks, the DVY represent ownership in a company, while providing exposure to 100 broad-cap U.S. stocks that have a consistent five-year history of paying high dividends yields. The DVY pays a 3.16% annual dividend yield, compared to a 2.00% yield for the S&P 500 index,” according to Investopedia.
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DVY remains alluring for income investors, in part due to a screening methodology that includes dividend growth and payout ratios. On the bright side, recent history shows dividend ETFs can whether the rising Treasury yields storm. That happened in 2013 when Treasury yields surged, but DVY turned in a solid annual performance despite those rising Treasury yields.
Utilities traditionally trade at richer multiples relative to the broader market due to the sector’s defensive traits, but consumer staples are actually more expensive at the moment.
For more news and strategy on the Dividend ETF market, visit our Dividends category.
iShares Select Dividend ETF
Tom Lydon’s clients own shares of DVY.