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DVY: A Few Positive Developments


  • My 2018 outlook for DVY was modest, but that was before the correction.
  • DVY has reduced its utilities exposure, which I view as a positive in a rising rate environment.
  • DVY's dividend growth last year was impressive, and I expect 2018 to be similar.

Main Thesis

The purpose of this article is to explain why I feel the iShares Select Dividend ETF (NYSEARCA:NASDAQ:DVY) is an attractive investment option at its current market price. My outlook for dividend funds is still largely positive for the new year, as I expect dividend payouts to rise handsomely with tax reform as a major catalyst. Furthermore, DVY already has a solid tracking record of increasing its distributions, so this year should be no exception. Also positively, DVY has a slightly reduced stake to the utilities sector, since my last review, which I believe is a good thing with interest rates set to rise. Finally, DVY's second largest sector is financials, a sector I expect to out-perform the broader market in 2018.


First, a little about DVY. The fund seeks to track the investment results of an index composed of relatively high dividend paying U.S. equities. The index includes companies with comparably high dividend yields that have at least a five year track record of paying dividends. DVY is currently trading at $96.46/share and its most recent dividend payment was $.80/share. Based on the last four dividend payments, it yields 3.07% annually. So far in 2018, DVY has struggled, and the fund is down close to 2.5% since my last review, when I recommended investors avoid the fund. While this is not a large drop, it is significant when you consider that the S&P 500 is up over 2% during the same time period. However, since that review, the market correction has me considering adding to more defensive positions, and I believe DVY offers investors a much better value proposition than it did just a few months ago, which I will explain in detail below.

Dividend Growth - With More To Come

One of my primary concerns with

This article was written by

Dividend Seeker profile picture

I began my career in financial services in 2008, at the height of the market crash. This experience has shaped my investment strategy - which is focused on diversification, dividends, and growth opportunities. I am a competitive tennis player, and I competed at the Division I level in undergrad. I have a Bachelors and MBA in Finance.

(He is a contributing author for the investing group CEF/ETF Income Laboratory where he specializes in macro analysis. Features of CEF/ETF Income Laboratory include: managed income portfolios (targeting safe and reliable ~8% yields) making use of high-yield opportunities in the CEF and ETF fund space. These are geared toward both active and passive investors of all experience levels. The vast majority of holdings are also monthly-payers, for faster compounding and steady income streams. Other features include 24/7 chat, and trade alerts. Learn more.)

Analyst’s Disclosure: I am/we are long DVY, SCHD. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (12)

Dividend Seeker profile picture
Defensive play is coming in handy today...
After reading various recent company press releases (most thru links here on SA) it would seem the amount of tax savings to be allocated to dividend increases and share buybacks could be much greater then 43%. Would this not offset any potential rate increases? Actual question not rhetorical.
"Actual question not rhetorical."

It's a good question. I wish I knew with certainty. I looked at some of the financials and some of the bigger holdings do owe significant tax on a regular basis. In addition, some of the larger holdings of SCHD have considerable overseas cash to repatriate. Some of that might go to dividends and I guess some will go to buybacks.
Dividend Seeker profile picture
I believe dividend increases will help offset interest rate increases to some degree. So far, increases have been impressive, and I expect that will continue. 43% is a guiding number from one survey, if actual allotments exceed that, all the better in my opinion.
Tiki Bar Capital profile picture
DVY's utilities exposure makes it a good defensive holding. Perhaps not ideal for a fast growth environment. But you'll be happy to hold it in the next downturn.
The Crysenburger profile picture
TV y has been great for me for about I don't know for five years but given the interest rate environment I think I'm going to close out soon I don't see a lot of upside from here probably moving into some cash and biotechs, BBC or xbi
I know what you mean about the interest rate environment but I think the dividend increases and buybacks are going to keep this going for a while. I believe I read elsewhere that announced dividend increases hit a record.

I have some DVY and more SCHD and I think I'll hold on to them for a while longer to see how this pans out.
Cuip99 profile picture
I have owned DVY since 2009 and it has doubled in face value. I have enjoyed the dividends collected over the years. I also hold SCHD, VYM, and VIG - all dividend oriented funds. All of those funds have much lower management fees than DVY which puts more money in my pocket. I am not going to sell DVY but I would not buy any either. Management fee is way to high for an ETF.
At 25% in utilities, DVY is still very risky in an environment where rates are headed up.
Dividend Seeker profile picture
Definitely a concern for 2018, and perhaps beyond. Calling DVY "very risky" seems like a stretch to me, as the fund is more defensive in nature, but its under-performance of other dividend strategies could surely continue.
Per the "Portfolio" page on E*Trade, SCHD seems to have little exposure to utilities and a lower expense ratio but it pays less, too.

Maybe invest in SCHD now and pick up some XPU or something similar when it looks like utilities are bottoming out.
Dividend Seeker profile picture
Great point, SCHD is actually my largest dividend holding, it is a great fund and one that I cover.
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