An ETF For Tech Dividend Growth

| About: First Trust (RDVY)
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Technology stocks have been increasingly offering dividends to shareholders.

Investors who are interested in tech dividend stocks can take a look at the First Trust offering.

Additionally, other dividend ETFs include exposure to tech stocks as well.

By Todd Shriber & Tom Lydon

Gone are the days when the technology sector was eschewed by income investors. The largest sector weight in the S&P 500 has also been one of the most prolific contributors to the benchmark U.S. index's dividend growth over the past several years.

Consider these factoids: The PowerShares QQQ (NasdaqGM: QQQ), the NASDAQ-100 tracking ETF, has a trailing 12-month yield of 1.35%, about 50 basis points above its yield at the height of the tech bubble. Powered tech dividend growth, the First Trust NASDAQ Technology Dividend Index Fund (NasdaqGM: TDIV) has become a $644 million ETF in just two years on the market and has recently been hitting a series of new all-time highs.

There are other ETFs that are not dedicated tech plays that can still help investors capture the sector's rising dividend prominence, including the First Trust NASDAQ Rising Dividend Achievers ETF (NasdaqGM: RDVY). With its January debut, RDVY is one of the newer funds in the dividend growth ETF arena.

RDVY follows the NASDAQ Rising Dividend Achievers Index. As is the case with many of indices and dividend ETFs that are linked to those indices, RDVY has a focus on companies that have track records of boosting their payouts. To be included in the NASDAQ Rising Dividend Achievers Index, companies must have "paid a dividend in the trailing twelve-month period greater than the dividend paid in the trailing twelve-month period three and five years prior," according to First Trust.

RDVY's tech credentials are legitimate. Tech is the ETF's second-largest sector weight at 23.7% and five of the ETF's top-10 holdings are tech stocks. That group includes Apple (NASDAQGS: AAPL) and Microsoft (NASDAQGS: MSFT), two of the largest drivers of tech dividend growth in recent years.

RDVY's largest sector allocation is 29% to financial services, but because of the requirement that companies must have "paid a dividend in the trailing twelve-month period greater than the dividend paid in the trailing twelve-month period three and five years prior," investors should not expect to find a batch of money center banks in RDVY.

Rather, the bulk of the ETF's financial services exposure comes by way of asset management firms and insurance providers.

While tech is viewed as a new source of dividend growth, RDVY does feature plenty of exposure to sectors that have long track records steadily increasing payouts. That includes a combined 30.7% weight to the energy and health care sectors.

Even with its energy exposure, RDVY leans toward firms that have recently begun to show signs of being durable dividend stocks. That means a tilt toward oil services and refining names over integrated oil stocks. Eight of the ETF's nine energy holdings are either oil services or refining stocks.

For the investor that likes safe, dependable dividends (what income investor does not?), RDVY ensures that safety by only including companies with a cash-to-debt ratio in excess of 50% and excluding those firms with a trailing 12-month payout ratio in excess of 65%.

First Trust NASDAQ Rising Dividend Achievers ETF

Tom Lydon's clients own shares of Apple.

Disclosure: The author is long AAPL, QQQ.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.