iShares Debuts Dividend ETF

by: Michael Johnston

iShares announced the latest addition to its ETF lineup on Thursday, rolling out a fund that seeks to deliver exposure to U.S. companies that have consistently delivered relatively high dividend yields. The iShares High Dividend Equity Fund (NYSEARCA:HDV) will seek to replicate the performance of the Morningstar Dividend Yield Focus Index, a benchmark that includes 75 high yielding companies.

“Income is in high demand, yet continues to be hard to come by from traditional sources in a cost-effective, diversified, flexible trading manner,” said Noel Archard, Head of U.S. Product at iShares at Blackrock. “A basket of high dividend yielding equities can often provide investors with several benefits such as the potential for enhanced total return (especially in uncertain market environments), possible reduced volatility as compared to more growth-oriented stocks, and greater inflation protection than bonds through the ability to provide capital appreciation.”

The largest holdings of the new ETF include the usual suspects: firms such as AT&T (NYSE:T), Chevron (NYSE:CVX), Pfizer (NYSE:PFE) and Verizon (NYSE:VZ). From a sector perspective, the underlying index maintains its largest weightings in consumer goods (19.8%), health care (19.1%), utilities (17.1%) and telecom (16.6%).

Dividend ETFs in Focus

Interest in dividend ETFs has climbed in recent months as interest rates in the U.S. have remained depressed and options for achieving current returns through fixed income have diminished. HDV joins the iShares Dow Jones Select Dividend Index Fund (NYSEARCA:DVY), which was one of the first U.S.-listed products to offer exposure to dividend paying companies. DVY, launched in 2003, has more than $6 billion in assets and a distribution yield of about 3.6%. The recently-launched HDV will offer greater concentration of holdings, investing in about 75 companies compared to 100 holdings for DVY. The 10 largest components of DVY make up about 20% of assets, compared to more than 50% of holdings for HDV. The new fund will also maintain a greater allocation to large cap stocks; small caps and mid caps make up a major portion of DVY.

There are a number of different options for investors looking to invest in dividend paying companies, including ETFs focusing on small caps (NYSEARCA:DES), mid caps (NYSEARCA:DON), developed markets outside the U.S. (BATS:IDV), and emerging markets (NYSEARCA:DEM) (NYSEARCA:EDIV).

Disclosure: No positions at time of writing.

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