Dividend ETFs In The Spotlight

July 07, 2022

With the broad U.S. market down roughly 20% year to date, the bar is set pretty low in terms of outperformance in domestic equities.  

Energy stocks are topping the charts, with returns for the category above 30% so far in 2022—the only sector to deliver a positive return. But many investors might not feel comfortable jumping on that bandwagon after it’s run up so much. 

Dividend ETFs may have a certain appeal, though, as they aren’t a sector bet. They’ve outperformed the broad market, and four dividend ETFs with more than $1 billion in assets under management have notched positive returns year to date.  

iShares Core High Dividend ETF

HDV is the largest of these, with $12.7 billion in AUM. It’s up 1.65% year to date and 7.72% over the 12-month period. HDV has a distribution yield of 3.11%, nearly twice that of the SPDR S&P 500 ETF Trust (SPY)

The fund tracks the Morningstar Dividend Yield Focus Index, which uses two screens to select its components. The economic moat screen focuses the index on companies that have a clear edge over their competitors, while the other screen is a forward-looking comparison of assets versus liabilities. The 75 stocks in the index are weighted by the total dollar amount of their dividends.  

Its top industry groups include health technology, 23.85%; consumer nondurables, 17.02%; and energy minerals, 14.98%. Exxon Mobil Corp. is the largest holding, with a weighting of 6.93%, but that stock is also the top holding for two of the other funds in this comparison. Johnson & Johnson claims the No. 2 spot, with a weighting of 6.77%, followed by Verizon Communications, with a weight of 6.02%.  

First Trust Morningstar Dividend Leaders Index Fund 

FDL is the second largest ETF in the high dividend yield space, with nearly $3 billion in assets. It’s returned 1.58% for the year-to-date period and 10.37% for the 12-month period. Plus, it offers a distribution yield of 3.42%.  

FDL’s index, the Morningstar Dividend Leaders Index, is a different animal from HDV’s underlying benchmark, focusing on sustainable dividend growth. An eligible company’s dividend has to be higher than its dividend of five years ago, while also being less than its forward earnings per share estimates. From there, securities are ranked by dividend yield, and the top 100 are selected for the index; however, they are weighted by dollar dividend amount.  

The top industry groups include finance, 19.22%; energy minerals, 15.67%; and consumer nondurables, 13.16%. Exxon Mobil has a weight of 9.04%, while Verizon Communications has a weight of 8.44%. AbbVie is the third-largest holding, with a weight of 8.06%.  

Invesco High Yield Equity Dividend Achievers ETF

PEY has AUM of $1.24 billion. It has a year-to-date return of 0.76% and a 12-month return of 4.16%. The fund’s distribution is the highest among the funds in this comparison, at 4.01%.  

PEY tracks the NASDAQ Dividend Achievers 50 Index, which includes 50 companies weighted by dividend yield. Companies must demonstrate 10 consecutive years of dividend growth to be eligible for inclusion. 

The ETF’s top industry groups include finance, 26.8%; utilities, 25.44%; and consumer nondurables, 16.84%. It’s the only ETF in this comparison that does not have Exxon Mobil as its top holding, though the stock is in the portfolio. Northwest Bancshares is the largest holding, with a weight of 3.28%, while Altria Group Inc. claims the No. 2 spot, with a weighting of 2.8%. Healthcare Services Group Inc. is the third largest holding, with a weight of 2.74%.  

WisdomTree U.S. High Dividend Fund 

DHS is the smallest fund in this comparison, with $1.13 billion in assets. The fund has returned 2.36% year to date and 9.5% over the 12-month period. It has a distribution yield of 3.34%.  

The fund tracks the WisdomTree U.S. High Dividend Index, which includes 751 securities weighted by dividend. It has the widest-ranging portfolio of any of the funds in this comparison by far. DHS has a relatively lenient methodology, only requiring that a company paid out a dividend in the last 12 months.  

DHS’s top industry group is health technology, at 19.93%, followed by finance, at 17.57%; and consumer nondurables, at 17.3%. The top holdings include Exxon Mobil at 7.33%, Pfizer at 5.24% and Chevron Corp. at 5.14%. 

 

Fund Ticker AUM Exp Ratio # Of Holdings YTD Return 12-Month Return Inception
iShares Core High Dividend ETF HDV $12.7B 0.08% 75 1.65% 7.72% 3/29/2011
First Trust Morningstar Dividend Leaders Index Fund FDL $2.93B 0.45% 98 1.58% 10.37% 3/9/2006
Invesco High Yield Equity Dividend Achievers ETF PEY $1.24B 0.53% 50 0.76% 4.16% 12/9/2004
WisdomTree U.S. High Dividend Fund DHS $1.13B 0.38% 751 2.36% 9.50% 6/16/2006

Source: FactSet; data as of 7/1/2022

 

Contact Heather Bell at [email protected] 

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