A Look At The New Russell High Yield ETF (HDIV, ABT, KFT)

The number of dividend ETFs just keeps on growing as Russell Investment, the growing ETF sponsor that was previously most known for providing indexes to other ETF firms, added two new dividend funds to its lineup today. Russell's new large-cap high yield play is the Russell High Dividend Yield ETF HDIV. Home to 75 stocks, the Russell High Dividend Yield ETF will track the Russell U.S. Large Cap High Dividend Yield Index. HDIV's holdings are composed of dividend-paying companies with quality characteristics such as their ability to pay a higher dividend yield, exhibit sustained dividend growth and deliver earnings stability. The quality characteristics of each company are then evaluated by measures of financial strength including positive cash flow, return on equity and analyst forecasts for earnings growth, Russell said in a statement. With the addition of the High Dividend Yield ETFs, Russell currently features 26 U.S.-listed ETFs. “Russell research has shown that a total return approach that relies on a combination of dividends and capital appreciation can offer a more advantageous investment outcome than a simple dividend-yield strategy,” said David Koenig, investment strategist at Russell, in the statement. “Focusing solely on dividend yield runs the risk of selecting securities that may have high dividend yields because they may be distressed and their price is falling or choosing companies that finance dividend payouts with debt.” Specific data regarding HDIV's sector weights and individual holdings hasn't yet been posted on the Russell Web site, but HDIV's factsheet highlights the index's sector weights and top-10 holdings. Looking at the sector allocations, HDIV appears to be a conservative investors dream as utilities and pharmaceuticals stocks combine for over 62% of the index's weight. Merck MRK, Abbott Labs ABT, Johnson & Johnson JNJ, Pfizer PFE, Bristol-Myers Squibb BMY and Eli Lilly LLY are all found in the top-10 holdings, though Kraft KFT is the index's top holding with an allocation of 5.1%. The index has a median market cap of almost $7.1 billion and a current dividend yield of 4.38%. HDIV's expense ratio of 0.33% compares favorably with rival funds such as the iShares High Dividend Equity Fund HDV, which charges 0.4%. The new Russell offering is also cheaper than the SPDR S&P Dividend ETF SDY, which features an expense ratio 0.35%. The more relevant comparison might be between HDIV and HDV as the two funds feature similar holdings. On that basis, HDIV demands consideration for not only being cheaper, an important factor for long-term investors to consider, but also because its yield is almost 70 basis points higher than what the iShares ETF currently offers. After all, costs add up over time and yield matters in this market environment.