With the Federal Reserve raising interest rates, sending Treasury yields higher, many investors thought some high dividend strategies and the related ETFs would be laggards this year.
In some cases, that is true, but the Oppenheimer Ultra Dividend Revenue ETF (NYSEArca: RDIV) is a notable exception. RDIV is up 6% year-to-date, making it one of the best-performing dividend ETFs this year. The ETF hit another all-time high on Monday, something RDIV has recently been doing with regularity.
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.
What’s Driving RDIV
Earlier this year, high-yield sectors with bond-like qualities struggled, but that scenario recently reverse, helping RDIV gain about 11 percent since the start of the second quarter.
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 $633 million RDIV is heavily allocated to high dividend sectors. Its largest sector weight is 25.5% to utilities while the telecommunications and real estate sectors, also known for their high dividend traits, combine for 27.8% of the fund’s weight. Still, RDIV does feature some cyclical exposure with a combined 41.6% weight to the consumer discretionary and energy sectors.
The average market capitalization of RDIV’s holdings is $37.41 billion. While some high dividend strategies also feature high valuations, RDIV’s price-to-earnings ratio of just over 15 implies a discount to the S&P 500. The ETF yields 4.92%.
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