This High-Yield Fidelity ETF Is Beating the Market, Here’s Why

Fidelity’s High Dividend ETF (FDVV) is a fund that offers a compelling combination of both current dividend income and growth potential. The fund began in September of 2016 and has delivered a 12.8% lifetime annualized return as well as a steady stream of dividends to its shareholders.

Is the Fidelity High Dividend ETF a good investment to make today, or does the ongoing market downturn make FDVV look less attractive?

Key Points

• Fidelity delivers a 12.8% lifetime return with a 3.0% yield, blending dividend stability with tech-driven growth.

• Heavy exposure to tech and financials boosts returns but adds volatility if these sectors decline.

• Strong dividend yield and growth potential make FDVV a solid choice in both bull and bear markets.

What’s In FDVV?

FDVV is a 108-stock fund that focuses on a mix of large and mid-cap companies that are expected to increase their dividends over time.

With such a small number of stocks in the portfolio, it’s not particularly surprising to discover that FDVV is a fairly concentrated fund. The top 10 stocks alone account for over 30% of the fund’s holdings and are as follows:

• Apple (NASDAQ:AAPL)
• NVIDIA (NASDAQ:NVDA)
• Microsoft (NASDAQ:MSFT)
• JPMorgan Chase (NYSE:JPM)
• Visa Class A (NYSE:V)
• Procter & Gamble (NYSE:PG)
• Philip Morris (NYSE:PM)
• Coca-Cola (NYSE:KO)
• Exxon Mobil (NYSE:XOM)
• Broadcom (NASDAQ:AVGO)

FDVV is also fairly concentrated in terms of how it’s spread across different sectors. Information technology stocks make up 22.7% of the portfolio, while financials make up 21.2%. With consumer staples accounting for 13.3%, a total of over 57% of FDVV’s holdings are in the fund’s top three sectors alone.

One thing that’s particularly interesting to note about FDVV is that its top three holdings are three of the large, fast-growing tech companies that propelled the stock market to exceptional returns in 2023 and 2024. Normally, these would seem to be unusual choices for the top spots in a dividend ETF. After all Apple, NVIDIA and Microsoft offer yields of just 0.47%, 0.03% and 0.81%, respectively.

These stocks, however, could be key drivers of dividend growth in the years to come. Large tech companies like Apple, Microsoft and NVIDIA are currently sitting on large reserves of cash. While most of this capital will likely be invested into new growth initiatives, it will also give these companies the option to raise their dividends steadily going forward.

How Has The Fidelity High Dividend Fund Performed?

FDVV has been very consistent in terms of the returns it has produced. Over the last five years, the fund has averaged an annualized return of 16.1%, compared to 16.9% returned by the S&P 500. When one considers the superior dividend yield that FDVV offers, the edge actually goes to FDVV in terms of total performance.

This is another strength of the fact that FDVV includes multiple members of the Magnificent Seven tech companies. Over the past few years, a handful of the largest tech stocks have driven the majority of the S&P 500’s returns. Because three of these stocks are represented at the very top of the FDVV fund, the ETF has been able to keep pace in a way that many dividend-focused ETFs haven’t.

Over the last year, FDVV has even been able to beat the S&P in terms of price appreciation. The fund has gained 21.1% over that time, compared to 18.4% for the S&P 500.

FDVV’s Dividend Yield

FDVV currently has a 30-day SEC yield of 3.0%, which is more than twice the S&P 500 average of 1.3%. This also puts FDVV ahead of several other leading dividend ETFs. Vanguard’s High Dividend Yield Index Fund ETF (VYM), for instance, yields 2.7%. As such, FDVV is a strong candidate when it comes to producing immediate income.

The Fidelity High Dividend Fund is also likely a good bet for long-term dividend growth. The mix of large tech companies with potential for rapid dividend increases and stable, dominant businesses that have been raising their dividends for decades provides investors with a solid blend of dividend growth opportunities. As such, investors who buy and hold FDVV will very likely see the amount of income their shares produce rise steadily over long periods of time.

What Are the Risks of FDVV?

While there are several advantages to investing in FDVV, there are also some risks associated with it as well. As noted above, the inclusion of Apple, NVIDIA and Microsoft has helped FDVV keep up with and even outperform the S&P 500 during the tech stock bull market of the last two years. Now, however, having these three stocks as its top assets could be something of a liability.

This year, the Magnificent Seven have led the market’s decline as the economic outlook has worsened. While these businesses are still incredibly valuable, it’s possible that they could continue falling if the market extends its correction. The three members of this group in the FDVV portfolio make up about 15% of its holdings, potentially exposing the fund to the risk of outsized short-term losses if highly-valued tech stocks continue to move lower.

FDVV’s heavy concentration in just a handful of sectors could also present moderate risks. If a recession or general economic stagnation sets in later this year, some sectors could be hit harder than others. A more even spread could be better from a risk-management perspective, as it minimizes the amount of damage any single sector can do to a portfolio.

Is FDVV a Good Investment?

Even with the risk of short-term volatility ahead, FDVV still appears to be a good potential buy for those seeking income and dividend growth. The portfolio is made up principally of large, successful businesses that can likely weather potentially tough times ahead with minimal difficulty. Given that FDVV has been able to more or less track the S&P 500 over time, it’s likely that the fund will continue to deliver steady compounding returns while also producing a superior stream of income for its shareholders.

FDVV could also be a decent choice for riding out the current stock market downturn in spite of the risks associated with its heavy concentration. Thanks to its very high dividend yield, FDVV could produce better total returns for shareholders than ETFs focused exclusively on growth if the market continues to fall or the economy weakens. As such, FDVV could be a reasonable buy for both good and bad market conditions.