Investors looking at the benefits of equity hedges with a dividend strategy should consider the Hedged Dividend Income ETF (NYSEArca: DIVA), an ETF that can help reduce dividend equity risk.
DIVA tracks the INDXX Hedged Dividend Income Index, which is designed to deliver a strong current yield capital appreciation potential with a risk profile similar to a corporate bond index, according to AGFIQ.
DIVA holds 100 equally weighted securities within the universe of the largest 1,000 US stocks that have paid consistent or growing dividends and which have the highest dividend yields. Additionally, the fund shorts approximately 150 to 200 stocks, within the same universe, that have the lowest-to-no dividend history and low yields. Due to its indexing methodology, investors may find higher yields than dividend stocks while hedging against volatility of equity markets.
DIVA Benefits: Low Volatility, A Monthly Dividend, and More
DIVA is also positioned as a low volatility income generator as its standard deviation is well below that of the S&P 500 while it’s yield is well in excess of the Bloomberg Barclays Aggregate Bond Index.
DIVA looks for stable or growing dividends and looks for the highest yield among the 1,000 largest names in the U.S. The portfolio then limits sector weights and equally weights components to avoid concentration risks. Furthermore, the ETF shorts stocks with low yields to hedge equity and sector risks as a way to diminish overall portfolio volatility and preserve the dividend yield of long securities.
Although DIVA strives for a risk profile comparable to corporate bonds, the ETF delivers a higher after-tax yield.
DIVA features another compelling feature for income investors: a monthly dividend, a trait not featured by many of the largest U.S. dividend ETFs.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.