Investors looking for elevated income and reduced volatility have some credible options to peruse among ETFs, one of which is the VictoryShares US Large Cap High Div Volatility Wtd ETF (NasdaqGM: CDL).
CDL tracks the highest 100 dividend-yielding stocks of the CEMP U.S. Large Cap 500 Volatility Weighted Index with four quarters of positive earnings and are weighted based on their daily standard deviation, or volatility.
“While its name may imply that it’s similar to the aforementioned LVHD, the VictoryShares fund has its own unique traits. CDL offers some flexibility rather strict adherence to a methodology, which can lead to yield-driven strategies that are reliant on a small number of securities,” reports InvestorPlace.
Dividend Growth, Too
The VictoryShares volatility weighted approach should not be confused with low-vol strategies, which are designed to capture excess returns to stocks with lower-than-average volatility, beta, and/or idiosyncratic risk.
While low-vol ETFs may only hold companies that tend to exhibit smaller swings using the factor as a selection, the VictoryShares suite starts with the broad market and screens for companies with four quarters of positive earnings. Those stocks are then weighted based on their standard deviation over the past 180 trading days. Stocks with lower volatility are given higher weightings and stocks with greater volatility are given lower weightings. Ultimately, all securities that pass the earnings criteria are present, just at different weights.
CDL is positioned as a high dividend strategy, but its yield is below 3% and many of its holdings are reliable dividend growers.
Companies with a record of raising dividends are more attractive than usual since they issue their dividends cautiously. These dividend payers typically include higher quality companies that are more cautious when raising dividends since they would do so without stretching their balance sheets.
“Additionally, CDL features no exposure to real estate stocks and as a value fund, the ETF’s weight to financial services — 22.84% — is high. That’s a risk with interest rates being low, but the benefit is that many dividend payers from that sector aren’t burdened by their payouts and are likely to increase those rewards this year,” according to InvestorPlace.
CDL’s yield implies room for dividend growth, not yield so high that investors have to be concerned about negative dividend action in the fund’s underlying components.
For more on income strategies, visit our Retirement Income Channel.
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.