Buybacks And Dividends In One ETF

In the world of exchange traded funds (ETFs), there are funds dedicated to share buybacks and plenty dedicated to dividends. A few ETFs combine both avenues of shareholder rewards. The newest entrant is the aptly named iShares U.S. Dividend and Buyback ETF DIVB.

The iShares U.S. Dividend and Buyback ETF debuted Thursday courtesy of BlackRock Inc.'s BLK iShares unit, the world's largest ETF issuer. The new ETF tracks the Morningstar US Dividend and Buyback Index.

That index, which is just six weeks old, but is back-tested to June 2006, “is designed to provide exposure to U.S.-based companies that return capital to shareholders through either dividend payments or share buybacks. The index consists of companies providing the largest dividend and buyback programs in the market by dollar value. In aggregate, index constituents represent 90% of the total shareholder capital distribution of the Morningstar US Market Index benchmark,”

Dividends And Buybacks

DIVB holds 383 stocks. While most of the new ETF's holdings are dividend payers and growers, not all are dividend stocks. For example, smaller holdings in the new ETF include Biogen Inc. BIIB and Google parent Alphabet Inc. GOOGL (GOOG), neither of which pay dividends.

DIVB's holdings are selected based on shareholder yield, which is a combination of dividend yield and net buyback yield. Companies must have a net shareholder yield above 0.1 percent to be included in DIVB's underlying index.

DIVB's top holdings include Apple Inc. AAPL and Microsoft Corp. MSFT, which have not only been voracious buyers of their own shares, but prodigious dividend growers in recent years as well.

Sector Glance

DIVB is lightly allocated to high dividend sectors, such as consumer staples, telecommunications and utilities. Those sectors combine for just 13 percent of the ETF's weight, indicating the new fund is more of a buyback and dividend growth play rather than a yield play.

DIVB allocates over 21 percent of its weight to technology, a sector that has been a major source of buybacks and dividend growth over the past several years. Financial services companies, which have been rebounding from the spate of negative shareholder actions seen during the financial crisis, are DIVB's second-largest sector weight at 17.3 percent.

The new ETF has an annual expense ratio of 0.25 percent, or $25 on a $10,000 investment.

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