Advisors and investors looking to add potential diversification to their dividend allocations should consider the Fidelity High Dividend ETF (FDVV). The fund’s methodology includes multiple screens for dividend metrics when selecting securities.
FDVV provides exposure to companies actively paying and growing their dividends. The fund seeks to track the Fidelity High Dividend Index, which includes large-and mid-cap companies with high relative dividend yields in the U.S. and abroad. This may provide diversification potential to strategies focused solely within the U.S. or solely internationally.
The starting universe consists of the 1,000 largest U.S. and developed international stocks based on market cap. The Index imposes a 10% limit on the international allocation.
Price returns and total returns for FDVV as of 08/27/24.
A Triple Screen and Sector Tilt to Dividend Yield
While some dividend strategies on the market focus solely on dividend growth or yield, FDVV’s methodology screens for dividends in three different ways. Companies included in the Index are scored for their dividend yield (70% weight), payout ratio (15% weight), and dividend growth (15% weight) separately within each sector.
Dividend yield receives the heaviest weighting when calculating scores. Individual stocks are weighted based on market cap, and the same overweight adjustment applies to all stocks within a sector. This seeks to lower potential single-stock concentration due to market cap.
Individual sectors are also weighted according to the broader U.S. equity market. This focus seeks to provide exposure to higher relative yield dividends with a sector tilt (within constraints). The strategy reallocates up to 40% from the bottom half of sectors to the highest-yielding sectors.
The Index rebalances annually and includes a quarterly review to ensure member stocks continue to pay dividends. If a stock held by the index eliminates its dividend payment, it will be removed from the index in the next quarterly review.
As of 06/30/24, the fund’s top overweighted sectors relative to its starting universe included Industrials, Consumer Staples, and Energy. FDVV has a net expense ratio of 0.15%.
Fidelity Investments® is an independent company, unaffiliated with VettaFi. There is no form of legal partnership, agency affiliation, or similar relationship between VettaFi and Fidelity Investments, nor is such a relationship created or implied by the information herein. Fidelity Investments has not been involved with the preparation of the content supplied by VettaFi and does not guarantee or assume any responsibility for its content.
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