Yields on 10-year U.S. Treasurys currently reside at 2.48
percent, a significant jump from the 2.13 percent offered by
Uncle Sam's debt on June 3.
Rising yields on what is generally considered a risk-free
asset could affect some wildly popular dividend
. It is common sense. Why take on equity risk, now matter how
benign, with an ETF that only yields between 2.2 and 2.3 percent
when less risky Treasurys yield more?
Investors that want to remain in dividend ETFs over Treasurys
due have options when it comes to finding funds
with decent yields
and superior performance compared to the largest dividend ETFs. A
new kid on the dividend ETF block gives investors another
The FlexShares Quality Dividend Defensive ETF (NYSE:
) debuted in December as
part of a three-ETF suite of dividend
. QDEF aims to "target a beta lower than the Parent Index
(Northern Trust 1250) and improve on the Parent Index's dividend
yield," according to Flex Shares, the ETF unit of Northern Trust
In the six months since its debut, QDEF has accumulated almost
$23 million in assets under management while returning 13
percent. That performance is slightly better than that of the
larger Vanguard High Yield Dividend ETF (NYSE:
) and well ahead of the $12 billion iShares Dow Jones Select
Dividend Index Fund (NYSE:
), which is up nearly 10 percent over the same time.
Since inception, QDEF's underlying index has outperformed
DVY's index by 330 basis points
through the end of May
QDEF has a 30-day SEC yield of 2.74 percent and a distribution
yield of 3.41 percent,
according to issuer data
. Obviously, both of those numbers are better than what 10-year
Treasurys offer. To be fair to the other ETFs, QDEF's 30-day SEC
yield is trails both DVY and VYM.
That does not mean the new ETF is not worthy of consideration
in the current market environment. The opposite is true. QDEF's
sector weights highlight why the fund could be profitable for
investors if interest rates rise. The ETF allocates less than
10.2 percent of its combined weight to rate-sensitive telecom and
utilities stocks. DVY and VYM allocate 31 percent and 13.4
percent, respectively, to those sectors.
QDEF also offers robust weights to sectors that will be
important drivers of future dividend growth,
including financial services and technology
. Those sectors combine for nearly a third of QDEF's weight. VYM
is not bad on that front with a 22.8 percent combined weight to
those sectors, but DVY devotes a mere 14.3 percent combined to
financials and technology.
QDEF's top-10 holdings include seven Dow stocks with
), Altria (NYSE:
) and Conoco-Phillips (NYSE:
) the outliers. Exxon Mobil (NYSE:
) is the fund's largest holding with a weight of just over five
In the near-term, QDEF is a viable option for investors that
want to be involved in dividend stocks even if Treasury yields.
Over the long-term, the new ETF's exposure to sectors that will
generate future dividend growth (financials and tech) along with
a combined 23.3 percent weight to staples and energy, two groups
with impressive track records of payout increases, should serve
What QDEF will need to separate itself from the dividend ETF
pack is outperform funds such as VYM because that fund only
charges 0.1 percent a year compared to 0.37 percent for QDEF.
For more on ETFs, click
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