Tag Archives: schd

The iShares Select Dividend ETF: Not Your Traditional Dividend ETF

Summary Compared with other dividend ETFs DVY is quite unique. Its portfolio is a lot different than some would expect. It is higher yielding than both VYM and SCHD. In my last article I highlighted the PowerShares S&P 500 High Dividend Low Volatility ETF (NYSEARCA: SPHD ) which I believe is a very solid dividend ETF. Of course, I also highlighted that there are also plenty of other good dividend ETFs available to investors. One other dividend fund I personally like is the iShares Select Dividend ETF (NYSEARCA: DVY ). I believe that DVY is unique in the sense that it is a more like a traditional dividend ETF, however, is not your typical one. Having said that, I believe DVY is an excellent compliment to a more traditional dividend ETF. To really highlight DVY, and why I believe it is uniquely good, I thought it would be prudent to compare it to two other high quality dividend ETFs. The two that I chose are the Vanguard High Dividend Yield ETF (NYSEARCA: VYM ) and the Schwab U.S. Dividend Equity ETF (NYSEARCA: SCHD ). A couple of basics are laid out in the table below to get a quick glance at each of the funds before getting to their holdings. Fund Yield Expense Ratio Price/Earnings Beta DVY 3.32% 0.39% 17.01 0.52 SCHD 2.94% 0.07% 19.59 ~1.0 VYM 3.02% 0.10% 19.30 0.93 From the higher yield and lower P/E ratio we can see right away that DVY is different than these other two. What might stand out the most for some is DVY’s expense ratio, though. This higher expense ratio compared with the other two is an obvious downside. However, while the expense ratio seems very high compared to these two, it is actually is below the average of 0.44% for ETFs in general. A big plus for DVY would be the low beta. It is definitely a fund that experiences less volatility than some of the other dividend focused ETFs. Taking a quick look at the top 10 holdings it is easy to see how the basics above come together. Looking at the above list it doesn’t really seem like this is by any means your more traditional dividend ETF. AT&T (NYSE: T ) doesn’t even cut into the top 25 holdings. Johnson & Johnson (NYSE: JNJ ) isn’t even in the 100 name portfolio. To really exemplify what I’m getting at, below are the top 10 holdings for the other two funds. SCHD VYM Comparing the top 10 holdings is great and all, but the real comparison comes with looking at the overall holdings based on sector. This is where DVY looks immensely different than other dividend ETFs. Similar to SPHD, DVY is heavily weighted toward utilities. The difference would be that DVY is not weighted with REITs at all. It is fairly obvious why there is such a great weight dedicated to utilities seeing as they are some of the best dividend payers in the market. Having regulated and reoccurring businesses offers for the most part consistent safety for dividends. In comparison take a look at the sector weights for the other two. (SCHD left, VYM right) As can be seen, both have very few utilities in their portfolios. This is what I believe makes DVY such a good compliment to either of these solid funds. Since both SCHD and VYM are lacking in exposure to utilities, one could easily make up with this by adding DVY. DVY is clearly a lot different than traditional dividend focused ETFs in the sense that one is getting such large exposure to utilities. For those seeking income this is a good thing considering utilities are such solid dividend payers. Same as my previous article I will give a fair warning to investors as to where the funds value is. With a rate hike looming on the horizon it may be prudent to wait on the purchase of DVY. Since utilities is one of the larger sectors most affected by a rate hike, it may be prudent to wait and see if there is any further downside post-hike. In conclusion, DVY is very unique dividend ETF. Since it gives a much different exposure to investors I see it as an excellent compliment to those who own other traditional dividend ETFs. Overall, the fund is a solid pick for any dividend investor seeking attractive distributions and relatively low volatility.

Solid Holdings And Growing Dividends Are On Sale? I’d Like To Buy Those

Summary The Schwab U.S. Equity Dividend ETF offers investors very solid growth in dividends. Looking at the combination of yield and growth rate makes SCHD look like a very compelling long term investment. SCHD has been slightly less volatile than the S&P 500. I don’t want to stop buying equity when prices drop, so I’m buying the slightly less volatile equity. The holdings are a solid batch of companies with strong dividend histories and established market positions. Lately I’ve been looking for ETFs that offer investors more safety. We are seeing macroeconomic issues with corporate profits after tax making up record percentages of GDP and a stock market that, at least measured by the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) is getting quite expense when we measure price to earnings or price to sales. That creates a real problem for investors looking for investments that have respectable yields without absurd levels of risk. In my opinion, one of the better shelters for the potential volatility is the Schwab U.S. Dividend Equity ETF (NYSEARCA: SCHD ). How expensive is the market? To demonstrate the relatively high prices, I grabbed the following chart: (click to enlarge) I try not to focus too much on any single measure. However, it is worth noting that price to sales levels are fairly high and that is enough to concern me and encourage me to focus on using more conservative allocations. Some sectors such as telecommunications are seeing substantial pricing wars that will drive down both sales values and profit levels. That makes me fairly bearish about the outlook for that sector. In the same way, we have seen mining companies facing very high fixed costs. Rather than respond to lower prices by cutting production, many initially attempted to increase production so the fixed costs could be spread over more units of production. From a macroeconomic perspective, I think thinner profit margins stemming from fierce competition are very healthy for the long term economy. More intense competition drives more efficient allocation of resources and lower costs are a very material benefit for consumers. Despite those gains, I want to be careful not to overextend my portfolio in buying up companies with deteriorating earnings. I’ve had quite enough of that pain from Freeport-McMoRan (NYSE: FCX ) when I didn’t predict that copper prices would get smashed by hedge funds shorting copper futures contracts to express a bearish view on China. That was an interesting lesson to learn. It encouraged me to be more careful about firms that are susceptible to seeing declining pricing power. Why SCHD is great While SCHD offers investors some appealing characteristics, like a .07% expense ratio, I’m finding more to love than the low holding costs. SCHD is offering some pretty great dividend growth history. 2011 was an incomplete year and is not a fair comparison. The full year data begins in 2012. The impressive thing is that 2015 is also an incomplete year but it is already matching the distributions for 2013. This is a dividend ETF with a respectable yield and it is a solid choice as a core portfolio holding. Holdings The following chart shows the top 10 holdings: (click to enlarge) This is a pretty good batch. I can’t help but notice that they are putting heavy weights on some of the companies that seem to be out of favor right now. Verizon Communications (NYSE: VZ ) is an example of one of the companies that I’m concerned about as Sprint (NYSE: S ) wages a massive price war. On the other hand, I’m left wondering how long the fierce competition will last. In a market that is so heavily concentrated, it seems like a reduction in intensity of competition would immediately benefit all companies. You might wonder who would move first to calm the battle. My guess is Sprint, if they stopped battling I think Verizon and AT&T (NYSE: T ) would both quickly drop back into a more complacent strategy. I have to admit that I’m pretty big on seeing the heavy allocations to Exxon Mobil (NYSE: XOM ) and Chevron (NYSE: CVX ) because I expect those mammoths to get back on track. Investors may believe that cheaper gas is here to stay, but I think money in politics is here to stay for much longer. Don’t expect XOM and CVX to go quietly into the night. One way or another, the major gas companies will put up a fight for their shareholders. The Coca-Cola Company (NYSE: KO ) and Pepsi (NYSE: PEP ) have both trailed the S&P 500 dramatically over the last five years. I’ll take that risk because they have a great distribution system in place. While junk food may be on the way out and healthier food is on the way in, these companies still have an incredible economic moat. They can still acquire the more attractive products and utilize their system of delivery to add substantial value to the process. Remember KO wasn’t too shy about taking a major position in Monster Beverage Corp. (NASDAQ: MNST ) when they recognized that MNST had a very desirable product that needed a stronger global distribution channel. Conclusion When the volatility in the market gets ugly, I’d rather not sit on the sidelines. This great dividend ETF is just what I need to keep acquiring the kind of dividend champions I want to hold for decades. Now if the price would just drop a little further and trigger my latest buy order… Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in SCHD, FCX over the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: Information in this article represents the opinion of the analyst. All statements are represented as opinions, rather than facts, and should not be construed as advice to buy or sell a security. Ratings of “outperform” and “underperform” reflect the analyst’s estimation of a divergence between the market value for a security and the price that would be appropriate given the potential for risks and returns relative to other securities. The analyst does not know your particular objectives for returns or constraints upon investing. All investors are encouraged to do their own research before making any investment decision. Information is regularly obtained from Yahoo Finance, Google Finance, and SEC Database. If Yahoo, Google, or the SEC database contained faulty or old information it could be incorporated into my analysis.