Concerns about higher Treasury yields are weighing on some dividend strategies this year, but some dividend exchange traded funds are still delivering solid performances. The Oppenheimer Ultra Dividend Revenue ETF (NYSEArca: RDIV) jumped to an all-time high Tuesday.
While some may be put off by the focus on highest yielding dividend stocks taken from a broader universe and the potential risks this entails, RDIV also includes a revenue-weighted tilt that could refocus the ETF strategy toward companies with stronger fundamentals or those that are more likely to maintain their higher level of yields.
Additionally, RDIV’s revenue-weighted methodology can help investors avoid expensive stocks and tap into the value factor at a time when some market observers are betting value stocks are poised to rally.
Revenue weighting could provide diversified exposure to the market, is not influenced by stock price, reflects a truer indication of a company’s value and offers stable sector exposure. Moreover, revenue weighting may provide a more value-oriented portfolio and historically outperformed in a value-driven market while showing lower drawdowns during growth-driven markets.
A Long-Term Idea for Investors
Additionally, dividend-paying stocks typically outperform those that do not pay over the long haul, with less volatility, due to the compounding effect of dividends on the investment’s overall return. Dividend growers have also proven to be effective ways of protecting portfolios against the effects of inflation.
RDIV “invests in the securities in the S&P 900 with the highest trailing dividend yield. Each of these securities is then weighted by top line revenue, instead of market capitalization,” according to Oppenheimer. The ETF, which benchmarks to the S&P 900 Dividend Revenue-Weighted Index, holds 62 stocks.
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The consumer discretionary and utilities sectors combine for over 47% of RDIV’s weight while the energy and real estate sectors combine for another 31.3%. The ETF is significantly underweight financial services, healthcare and technology stocks relative to the S&P 900 Index.
Rising interest rates are often viewed as a risk to dividend stocks and the related exchange traded funds. However, some dividend ETFs can help income investors stick with dividend-paying stocks even as the Federal Reserves continues boosting borrowing costs.
Although RDIV has exposure to some high-yield sectors, the ETF is also chock full of companies that have steadily boosted payouts, many with lengthy histories of dividend increases.
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