In an uncertain market environment where trade wars make the major indexes succumb to wild swings, dividend exchange-traded funds can help provide the shelter and income conservative investors desire.
One of the ETFs to consider that checks those boxes is the iShares Core High Dividend ETF (NYSEArca: HDV).
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.
“The uncertainty of market prices is one of the reasons investors have often relied on dividends: The compounding effects from the reinvestment of dividends have had a significant impact on portfolio returns over the long run,” said BlackRock in a recent note. “Reinvested dividends have explained almost 50% of the S&P 500’s total return over the past 30 years.”
Hone in on HDV ETF
The $6.89 billion HDV holds 75 stocks and is positioned in mostly conservative fashion at the sector. While HDV’s largest sector is 19.56% to energy, the fund devotes over 31% of its combined weight to the defensive healthcare and consumer staples sectors.
HDV has a trailing 12-month dividend yield of 3.27%. While that is not alarmingly high, it puts the fund on the higher end of the yield of spectrum among domestic dividend strategies. Fortunately, the interest rate climate is again conducive for high dividend funds.
“However, while rates have risen somewhat, they remain low globally as the Fed and other central banks have softened their stances on rates hikes,” according to BlackRock. “That should help shore up the market value of dividend stocks. What’s more, with rates looking like they will stay low for the foreseeable future, equity dividend yields continue to be an attractive option for those looking for a source of income.”
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.