Dividend ETFs Hitting New Highs

Dividend-focused ETFs have been gaining immense popularity and are riding higher this month on investors’ drive for higher income. This is especially true as interest rates remain at lower levels despite the fact that the Fed is curtailing its monetary stimulus and bond yields are close to their all-time lows.

Additionally, the latest comments from the Fed Chairperson – Janet Yellen – are fueling a rally in dividend funds. Janet Yellen has again committed to keep short-term interest rates near zero levels for a considerable period of time to support the gradually improving economy.

Further, the most popular trading proverb ‘sell in May and go away’ has boosted the demand for dividend-paying stocks. This is because most of the investors believe in this old saying and sell their stocks in May to avoid the seasonal decline in the equity markets during the summer months (from May end to early September). As a result, investors duly turned their focus on dividend paying stocks.

If this wasn’t enough, investors should note that most of the dividend paying companies are stable and mature with solid cash flows that provide greater stability and safety in a volatile environment. Though the U.S. market is hitting new highs, dumping of growth and momentum stocks and growing tensions in Ukraine remain concerns for the stock market.

In such a scenario, the companies that pay dividends generally act as a hedge against economic uncertainty and most of the dividend ETFs are climbing, reaching new highs this month. Notably, dividends accounted for more than 40% of total market returns over a long time horizon (say over the past 80 years).

Below, we have highlighted some dividend ETFs for those investors seeking both stability and higher income. These funds are hitting all-time highs and have a potential to move higher in the coming months as well.

ALPS Sector Dividend Dogs ETF (SDOG)

This fund applies the ‘Dogs of the Dow Theory’ on a sector-by-sector basis using the S&P 500. This could be easily done by selecting five highest yielding securities in each of the 10 GICS sectors and equally weighing them. These higher yielding stocks will appreciate in order to bring their yields in line with the market, potentially leading to outsized gains.

This approach results in a portfolio of 51 stocks with each security accounting for 2.6% of total assets. The fund focuses on yield in the large cap market while giving investors roughly equal exposure to all sectors. SDOG has amassed $664 million in its asset base while trades in volume of more than 105,000 shares. It charges 40 bps in annual fees and has a 30-day SEC yield of 3.56%.

The ETF hit its all-time high of $36.31 per share in yesterday’s trading session, representing a gain of about 5.2% over the past one month.

Vanguard High Dividend Yield ETF (VYM)

This large cap centric fund provides exposure to the high yielding U.S. dividend stocks by tracking the FTSE High Dividend Yield Index. The ETF is one of the largest and popular choices in the dividend ETF space with AUM of over $7.9 billion and average volume of around 549,000 shares. Expense ratio came in at 10 bps.

Holding 391 securities, the product is concentrated on the top two firms - Apple (AAPL) and Exxon Mobil (XOM) – making up for more than 5% share each while other security holds less than 4% of assets. In terms of sector, the fund is widely spread out with technology, consumer goods, financials, industrials, health care and oil & gas taking double-digit exposure in the basket.

VYM hit its fresh high of $64.74 per share yesterday and has moved higher by about 4.6% in the trailing one-month period. The ETF yields 3.00% in 30-day SEC yield and has a Zacks Rank of 2 or ‘Buy’ rating with a Medium risk outlook.

Vanguard Dividend Appreciation ETF (VIG)

This is the largest and most popular ETF in the dividend space with AUM of $19.4 billion and average daily volume of about 940,000 shares. The fund follows the NASDAQ US Dividend Achievers Select Index, which is composed of high quality stocks that have a record of increasing dividends for at least 10 consecutive years.

The fund holds 164 securities, which are pretty spread across various securities as none holds more than 4.1% of total assets. International Business Machines (IBM), Wal-Mart (WMT) and Exxon Mobil are the top three elements in the basket. However, the ETF is skewed toward industrials at 23.5% while consumer goods, consumer services and technology round off to the top four.

The product charges 10 bps in annual fees while its 30-day SEC yield comes at 2.02%. This fund also reached its all-time high of $77.17 per share yesterday, adding about 4.4% over the past one month. It has a Zacks Rank of 2 with a Medium risk outlook.

WisdomTree LargeCap Dividend Fund (DLN)
 
This ETF provides exposure to the large cap segment of the U.S. dividend paying stocks. It tracks the WisdomTree LargeCap Dividend Index, which is dividend weighted annually to reflect proportional share of cash dividend that each comapny is expected to pay in the coming year. The fund has been able to manage assets of $1.8 million and trades in good volume of 86,000 shares a day on average. Expense ratio came in at 0.28%.

With less than 300 stocks in its basket, the product is widely diversified across each component as none of these holds more than 3.63% of assets. Top three holdings include Apple Inc (AAPL), Exxon Mobil Corporation (XOM) and Microsoft (MSFT). From a sector look too, the fund is well spread out including information technology (16.06%), consumer staples (14.90%), financials (13.44%), health care (11.53%) and energy (10.99%).

The fund has a 30-day SEC dividend yield of 2.45% and was up 4.2% over the past month. DLN made a fresh high of $69.19 per share yesterday and has a Zacks Rank of 2 with a Medium risk outlook.

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