DVY: A Great Dividend ETF To Combine Growth, Yield & Quality For Your Portfolio

This post was originally published on this site

While there’s nothing wrong with adding dividend ETFs to your portfolio that target a specific strategy, sometimes it’s better to look at funds which incorporate multiple strategies into a single product.

With $23 billion in assets, the iShares Select Dividend ETF (DVY) is one of the biggest and most popular ETFs in this group.

DVY tracks the Dow Jones U.S. Select Dividend Index, which is composed of 100 of the highest yielding dividend stocks (excluding REITs). In order to qualify, stocks must have 1) a dividend equal to or greater than its 5-year average, 2) a coverage ratio of at least 167%, 3) paid dividends for at least 5 consecutive years, 4) a non-negative trailing 12 month earnings and 5) a market cap of at least $3 billion. Qualifying components are dividend weighted.

DVY combines a little bit of dividend growth, a little bit of high yield and a little bit of dividend quality. The qualifying criteria aren’t particularly stringent, but they do enough to eliminate most of the bad players. The elimination of REITs right off the bat reduces yield potential, but that’s probably an overall positive in this environment.

The 4-star Morningstar rating demonstrates that this strategy works over time. Its current yield of 3.6% is more than double that of the S&P 500. DVY also tends to be less volatile than the broader market, so this ETF can fit well as a conservative equity/high yield addition to a portfolio.

On the negative side, the expense ratio of 0.38% is higher than average and well above the expense ratios of the Vanguard ETFs, which typically come in at less than 0.10%. It also has nearly 20% of its assets in the financial sector. Investors may not want that kind of exposure, given what’s happening in banks right now.