A Compelling And Little Known Dividend ETF

Kurtis Hemmerling profile picture
Kurtis Hemmerling
4.96K Followers

Summary

  • SPDV is a new dividend ETF.
  • SPDV selects stocks in the S&P 500 based on 2 factors.
  • The factors are dividend yield and free cash flow yield.
  • These factors are linked to outperformance.
  • I compare DVY with SPDV to highlight the differences.

One reason I like dividends is that it helps keep the company accountable for its use of cash and resources. It is my belief that paying out a regular, sizable dividend creates a stronger sense of responsibility to the shareholder and therefore less waste of resources. In companies where dividends are not paid, management might be more prone to taking high risk and low returning opportunities using cash flows like its personal piggy bank.

High Dividend Yield and High Return

Another compelling reason to own dividend stocks is their superior total return when looking at a long-term investing window. You can read more about the outperformance of dividend stocks since 1927 in this article, Do Dividend Stocks Outperform?.

Below are two charts that compare the performance of stocks which pay dividends in the Russell 1000 index versus non-dividend paying stocks.

Dividend Payers in Russell 1000

Dividend Stocks in Russell 1000Non-Dividend Payers in Russell 1000

Non-dividend stocks in the R1K universe

The Danger of Dividends

Yet, just because a stock pays a dividend, this does not mean you should run out and add this to your portfolio wantonly. Stocks with abnormally high dividend yields often have higher risk. You need to ask yourself why this particular dividend stock has such a depressed price in comparison to its dividend.

  • Is it because growth is flat and the potential for capital returns is negligent?
  • Is the firm in a cyclical industry that is forecast to turn downwards?
  • Is the firm in danger of cutting its dividend or even de-listing?

The chart below shows the return of the highest yielding 20 stocks of the Russell 1000 index. Not too pretty.

Super High Yield Dividend Stocks

So how can you cut down on risk of higher yielding dividend stocks? To answer that question we will examine two ETFs which focus on higher-yielding stocks. One is very well-known and the other is

This article was written by

Kurtis Hemmerling profile picture
4.96K Followers
Dynamic Dividends is my latest achievement to assist income investors. I am a private consultant who has worked with various funds and firms designing sophisticated and customized products. My dream has always been to help the 'little guys' instead of putting profits solely in the pockets of the 'big guys'. Dynamic Dividends is that exact product. Low cost, built on sound logic, backed by years of experience, I give you my best.https://www.drawbridgestrategies.com/dynamic-dividends

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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