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3 New Dividend ETFs Offer Attractive Features For Income Investors

As the ETF universe becomes saturated with new investment strategies, it becomes harder and harder for issuers to add unique and value-added features. This is particularly true in the world of dividend investing, where many of the top funds were early to the scene and captured a significant market share. Most new entrants can be organized in one of these two categories:

  1. Partner with a well-known index provider to focus on a subset of stocks offering high yield or dividend growth and a relatively low expense ratio.
  2. Identify a truly unique niche within the dividend marketplace that includes a smart-beta approach, long/short strategy, or other alpha-generating focus at a premium price.

The former is a more traditional method that is designed to build core positions by aggregating high quality holdings in a transparent and low-cost manner. The latter is intended to provide tactical exposure in order to capitalize on a specific theme or take advantage of an emerging trend with the possibility for outperformance. Both of these types of funds have suitable applications within a well-diversified income portfolio.

The funds that typically do the best are able to clearly articulate their strategy, offer a compelling value proposition, and are introduced by a world-class asset manager. These three new dividend ETFs can certainly stand up to that test and are worthy of a closer look by serious income investors.

Guggenheim Dow Jones Industrial Average Dividend ETF (DJD)

If you love the simplicity and history of the 30 stocks that make up the Dow Jones Industrial Average (DJIA), then DJD may be an enticing option. The new dividend ETF from Guggenheim takes the 30 mega-cap companies in the Dow and re-weights them according to their dividend yield.

The end result is a portfolio that looks far different from the traditional price-weighted structure. Top holdings in DJD include: Chevron Corp (CVX), Verizon Communications (VZ), and General Electric Co (GE). Together these three stocks make up 16.34% of the DJD portfolio.

This ETF debuted in December 2015 and sports a modest expense ratio of 0.30%. While this isn’t necessarily the cheapest dividend ETF you can purchase, it is the only dividend fund to be reconstituted directly from the DJIA. This makes for a unique way to purchase a concentrated basket of large companies with a focus on overall yield.

Dividends from DJD are distributed on a quarterly basis and the 30-day SEC yield of this fund is currently listed at 3.02%, according to the fund company website.

SPDR S&P 500 High Dividend ETF (SPYD)

Another relative newcomer to the dividend scene is an ETF that is derived from the well-known S&P 500 Index. SPYD selects the top 80 dividend-paying securities within the S&P 500 Index based on total dividend yield.

Each of the underlying stocks in this ETF are equal-weighted to provide a similar distribution of capital across each company. This creates a level playing field for each stock regardless of their market cap, dividend history, or other factors. According to the prospectus, stocks are analyzed and rebalanced within the fund on a semi-annual basis.

The exclusive focus on top dividend paying companies turns out an impressive 4.44% 30-day SEC yield in SPYD. In addition, this fund charges a very minimal 0.12% expense ratio. The combination of low fees and diversification make this ETF a potential candidate as a core holding within an income generating portfolio.

Legg Mason Low Volatility High Dividend ETF (LVHD)

The last fund to make this list is from an established manager in the mutual fund space who is making the leap to ETFs in 2016. Legg Mason recently debuted their first foray into the ETF world with LVHD. This fund is designed to invest in 50-100 securities with the dual characteristics of high income and low volatility.

LVHD is based on an enhanced index that is primarily made up of large and mid-cap companies from a universe of over 3,000 stocks. The inclusion of smaller market capitalizations may ultimately set this ETF apart from its peers and offer a differentiated exposure than its large-cap competition.

The fund charges an expense ratio of 0.30% and its top holdings include VZ, Eaton Corp PLC (ETN), and Cummins Inc (CMI). The emphasis on companies having shown a historical pattern of lower relative volatility may be attractive for more conservative or risk averse investors as well.

LVHD has not distributed any income to shareholders and as such, yield data has not yet been made available.

The Bottom Line

Dividend ETFs can be very useful tools for income investors to retain correlation with the overall stock market and achieve an above-average yield in the process. Each of the funds mentioned above have individually attractive qualities that may make them suitable for those seeking to enhance the equity sleeve of their portfolio. Nevertheless, it should be kept in mind that these funds are relatively new and will need time to build a solid reputation, trading volume, and public track record.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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