ETF Showdown: Dividend Dilemma (HDV, HDIV, JNJ)

There's no denying it. Investors love dividend ETFs and ETF issuers are more than happy to oblige by rolling out new funds aimed at income investors. More dividend options in the ETF world should be a good thing for investors, but a lot of these new dividend ETFs look like mirror images of each other, at least at first glance and this requires a closer examination to uncover the best options. Sounds like a task for the ETF Showdown as we look to solve the dividend dilemma between the iShares High Dividend Equity Fund HDV and the newly minted Russell High Dividend Yield ETF HDIV. Obviously, those tickers could be a source of confusion, but that issue aside, it's worth noting the iShares High Dividend Equity Fund is by new means old. In fact, the ETF will celebrate its first birthday in two weeks. In those 50 weeks of trading, HDV has been quite successful. Home to 76 stocks, the ETF has pulled in almost $1.4 billion in AUM, easily making it one of the most successful new ETFs of 2011. HDV's lineup reads like a who's who of familiar blue chip dividend payers. The ETF's top-10 holdings, which account for 62% of the fund's weight, include AT&T T, Pfizer PFE, Johnson & Johnson JNJ, Philip Morris PMI and Procter & Gamble PG. The Russell High Dividend Yield ETF also devotes a fair percentage of its weight to Dow stocks. Dow members in that ETF's top-10 fray include DuPont DD, Verizon VZ, AT&T, Johnson & Johnson and Merck MRK. Overall, HDIV is home to 75 stocks and its top-10 holding represent 47% of the fund's weight. Advantage: HDIV. At the sector level, utilities and health care names dominate the new Russell fund at almost two-thirds of the fund's weight. At almost 12.5%, consumer staples are the only other sector to get a double-digit allocation. Along those lines, HDV is slightly more diverse as four sectors – health care, consumer stocks, telecom and utilities – receive double-digit weights. Advantage: HDV. In other words, the iShares High Dividend Equity Fund and the Russell High Dividend Yield ETF have a lot in common, each fund has its strong points and crowning a winner here might be difficult. Or will it be? Well, consider this. The Russell fund makes an effort to not chase yield and screens for companies that can continue raising their dividends. That's not to say the iShares fund doesn't do that, but Russell overtly said HDIV's employs a quality screen. And as we previously noted, 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. When two funds share this much in common, the expense ratio and yield take center stage and that's why we're opting for the new Russell High Dividend Yield ETF.