A Smart Beta ETF That Taps Dividend Growth

Among the many exchange traded funds emphasizing dividend growth, there is the First Trust NASDAQ Rising Dividend Achievers ETF (NasdaqGS: RDVY).

RDVY follows the NASDAQ Rising Dividend Achievers Index. As is the case with many of indices and dividend ETFs that are linked to those indices, RDVY has a focus on companies that have track records of boosting their payouts. To be included in the NASDAQ Rising Dividend Achievers Index, companies must have “paid a dividend in the trailing twelve-month period greater than the dividend paid in the trailing twelve-month period three and five years prior,” according to First Trust.

However, RDVY’s dividend increase streak requirement is loose compared to rival funds and it is not the only evaluation metric the ETF focuses on. RDVY’s constituents cannot have payout ratios in excess of 65% and must have cash-to-debt ratios above 50%.

“At 3½ years old, the fund has roughly $250 million in assets. While that’s a solid asset base, it doesn’t put it anywhere in the neighborhood of the biggest dividend ETF offerings from the likes of Vanguard or BlackRock. It’s not for a lack of performance though. Over the past three years, the fund has returned 12.1% per year compared to a 10.7% average annual return for the S&P 500, a track record that’s earned the fund a 5-star rating in Morningstar’s large cap value category,” according to ETF Daily News.

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