Revisiting Some High Dividend ETFs

With higher beta — cyclical sectors leading U.S. equities higher — it is not surprising that some conservatively-positioned high dividend strategies are not keeping pace with the S&P 500. That combined with barely noticeable market volatility could be prompting investors to look for more adventurous corners of the equity market, even with dividend exchange-traded funds.

Adding to the justification for looking beyond high-dividend strategies is that some previously low-yielding sectors, such as consumer discretionary and technology, continue fueling S&P 500 dividend growth, a trend that has been in place for several years.

“The more economically sensitive technology and consumer discretionary sectors' contributions to the S&P 500's indicated dividend rate has climbed to 15.5 percent and 9.0 percent at the end of June 2017, up from 14.7 percent and 8.1 percent at the end of 2012,” said CFRA Research Director of ETF & Mutual Fund Research Todd Rosenbluth in a note out Monday.

Still A Case For High Dividend ETFs

The iShares Core High Dividend ETF HDV has returned just over 4 percent year to date. That ETF has a trailing 12-month dividend yield of 3.35 percent, well above what investors will find on the S&P 500 or 10-year Treasuries.

“However, in late July, the average dividend yields for the S&P 500 telecom services (4.8 percent), utilities (3.5 percent) and consumer staples (2.7 percent) sectors were above the S&P 500's (2.0 percent) and the consumer discretionary (1.4 percent) along with technology (1.4 percent) sectors,” said Rosenbluth. “For investors seeking above-average income combined with capital appreciation potential, these defensive sectors still offer some strong choices.”

The $6.3 billion HDV holds 74 stocks with 21.3 percent hailing from the consumer staples sector. HDV has been held back by its 16 percent allocation to the energy sector, the worst-performing group in the S&P 500 this year.

A Different Strategy

The PowerShares High Yield Equity Dividend Achievers Portfolio PEY holds 50 stocks and tracks the NASDAQ US Dividend Achievers 50 Index, which employs yield and dividend growth consistency in its weighting methodology.

PEY, which allocates over 30 percent of its weight to small-cap stocks, has a trailing 12-month dividend yield of 3.2 percent. The ETF devotes over 41 percent of its weight to high-yielding utilities and consumer staples names.

CFRA Research has an Overweight rating on HDV and a Market-Weight rating on PEY. PEY, which pays a monthly dividend, is up less than 1 percent year to date.

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