With the Federal Reserve having issued some dovish commentary following its two-day meeting Wednesday, some high-yield assets, including dividend stocks, could extend already impressive year-to-date gains.
That includes the iShares Core High Dividend ETF (NYSEArca: HDV), which entered Thursday with a year-to-date gain of almost 14%.
HDV seeks to track the investment results of the Morningstar Dividend Yield Focus IndexSM composed of relatively high dividend paying U.S. equities. The fund generally will invest at least 90% of its assets in the component securities of the underlying index and may invest up to 10% of its assets in certain futures, options and swap contracts, cash and cash equivalents. The underlying index is comprised of qualified income paying securities that are screened for superior company quality and financial health as determined by Morningstar, Inc.’s proprietary index methodology.
“Two particularly popular dividend strategies are high dividend yield and dividend growth. High dividend yield seeks to provide exposure to above average dividend-paying companies relative to price, while dividend growth aims to invest in companies that consistently grow their dividends,” said BlackRock in a recent note. “For high yield strategies such as the iShares Core High Dividend ETF (HDV), which seeks to track the Morningstar Dividend Yield Focus Index, quality screens exclude companies with less defensible business models.”
Hone In On HDV ETF
The $7.25 billion HDV holds 75 stocks and has a trailing 12-month dividend yield of 3.48%. While it is a high dividend ETF, HDV is not excessively allocated to utilities and real estate stocks. Rather, HDV devotes over 35% of its weight to energy and healthcare names with the consumer staples and financial services sectors combining for over 27% of the fund’s roster.
“Common wisdom has been that high-dividend-paying companies tend to be focused in more mature industries,” according to BlackRock. “Companies within sectors such as Consumer Staples and Utilities for example, can afford to pay more of their earnings out in the form of dividends; they are generally more established, have high barriers to entry, and are less focused on reinvesting for rapid growth.”
Another source of allure with HDV is its expense ratio of just 0.08%, or $8 per year on a $10,000 investment. That puts HDV among the least expensive domestic dividend funds.
For more information on dividend-paying stocks, visit our dividend ETFs category.