The iShares Select Dividend ETF: Not Your Traditional Dividend ETF

By | December 9, 2015

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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. Scalper1 News

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