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Standard & Poor's


03/26/15 05:00:12 PM


In the last three years, ETF providers have launched 20 U.S. dividend ETFs, doubling the number of offerings. Considering the expectation that the Federal Reserve will raise interest rates during 2015, limiting the appeal of these "bond proxies", it easy to say investors don't need these newer alternatives. However, when we look at what dividend ETFs have performed the best to start 2015 these "young" ETFs top the list.

The three largest U.S. dividend ETFs -- Vanguard Dividend Appreciation (VIG 82 Overweight), iShares Select Dividend (DVY 77 Marketweight), SPDR S&P Dividend (SDY 78 Marketweight) -- have a combined $50 billion in assets and have all been around for more than eight years. VIG is the best performer of the trio this year but rose just 0.7%, underperforming the 1.4% gain for the S&P 500 Index. Meanwhile, DVY declined in value this year, hurt by its hefty exposure to lagging utilities and lack of exposure to more cyclical sectors such as consumer discretionary and information technology.

The strongest performing U.S. dividend ETF this year, up 3.1%, has been Deep Value ETF (DVP 26 Marketweight), an ETF few investors have likely heard of. The ETF launched only in September 2014, it has $228 million in assets and is ranked by S&P Capital IQ. The high-for-an-ETF 0.80% expense ratio contributes negatively to our ranking, but positive S&P Capital IQ STARS and Technical inputs are favorable. The average expense ratio for an equity income mutual fund is 1.3%.

The Deep Value ETF is comprised of 20 dividend paying stocks within the S&P 500 Index that the ETF provider, TWM, believes have solid balance sheets, positive earnings and strong free cash flow. The companies within the Index are weighted based on a rules-based assessment of their valuations so that the stocks that are deemed most attractively valued receive a higher weight.

Those holdings include Computer Sciences (CSC 69 ***), Frontier Communications (FTR 8 ***) and Hewlett-Packard (HPQ 33 *****). From a sector perspective, consumer discretionary (26% of assets) and telecom services (23%) make up half of the portfolio. There is no exposure to financials and materials and only minimal exposure to consumer staples companies

Another strong performing U.S. dividend ETF is Cambria Shareholder Yield (SYLD 32 Marketweight).

The ETF launched in May 2013 and has $225 million in assets. SYLD is an actively managed ETF that employs a quantitative approach to select U.S. listed companies that show strong characteristics in returning free cash flow to their shareholders. Specifically, SYLD invests in 100 stocks with market caps greater than $200 million that rank among the highest in paying cash dividends; engaging in net share repurchases; and paying down debt on their balance sheets.

Those holdings include Lowes (LOW 74 ***), Southwest Airlines (LUV 43 ****) and Western Digital (WDC 103 ***). From a sector perspective, the ETF is more diversified than DVP. However, financials (22% of assets), consumer discretionary (17%) and information technology (16%) companies are the most represented.

SYLD has a more modest 0.59% expense ratio relative to DVP, but still much higher than most dividend ETFs. However, the 2.3% return year to date has been stronger than VIG, DVY, SDY and other more popular ETFs, suggesting that it might be as worthy of investor consideration.

Other dividend ETFs that have less than three years of history but have started 2015 on a high note include First Trust NASDAQ Rising Dividend Achiever (RDVY 22 Overweight) and FlexShares Quality Dividend (QDF 37 Marketweight) and WisdomTree US Dividend Growth (DGRW 31 Overweight). All three have outperformed the S&P 500 Index this year.

Of course past performance is not necessarily indicative of future results and S&P Capital IQ cautions investors from making investment decisions solely based on an ETF's record. Reports on these and other dividend ETFs can be found on this platform to look inside the ETFs and to understand their cost factors.

S&P Capital IQ will be hosting a webinar on Maintaining Quality and Consistency in Dividend Investing March 17 at 11am. To register email or visit


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