A Look At The New Russell Small-Cap Dividend ETF (HDIV, DIVS, DES)

Russell Investment is making its presence felt in the world of dividend ETFs as the firm rolled out not one, but two new dividend funds. The large-cap member of that duo is the Russell High Dividend Yield ETF HDIV, but there is small-cap equivalent as well, the Russell Small Cap High Dividend Yield ETF DIVS. Home to 150 stocks, twice the number of its large-cap cousin, the Russell Small Cap High Dividend Yield ETF tracks the Russell U.S. Small Cap High Dividend Yield Index. As is the case with HDIV, DIVS is 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. “These measures of financial strength were created to help investors avoid chasing dividend yield, where quality is often sacrificed in search of higher yield,” said Greg Friedman managing director of Russell's global ETF product group. “By using quality screens embedded in the underlying transparent, rules-based indexes, we believe Russell has improved upon structural weaknesses common in traditional dividend products and brought an improved total return approach to the ETF marketplace. We've leveraged the best of Russell's core capabilities to offer investors an efficient, cost-effective way to access high-dividend-paying, quality-oriented companies.” DIVS should hold appeal for those investors looking for small-cap exposure to the resurgent financial services industry as that group accounts for almost 56% of the index's weight. Only utilities at just under 13% get a double-digit allocation in addition to financials. Other sectors represent in DIVS include producer durables, consumer discretionary and materials. The median market cap of the index's constituents is over $751 million and the current dividend yield is 3.83%. Also noteworthy is the fact that a fair amount of DIVS' financial services holdings, particularly the ones that are found in the ETF's top-10 lineup, are REITs and that could serve to juice the new ETF's yield going forward. DIVS will be competing directly with the WisdomTree SmallCap Dividend ETF DES and both funds have expense ratios of 0.38%. With almost $302 million in assets under management, DES has been trading for almost six years. That ETF is up roughly 10% year-to-date.