A Venerable Dividend ETF for Conservative Investors

MarketsETF Trends

The iShares Core High Dividend ETF (NYSEArca: HDV), which allocates nearly 21% of its weight to consumer staples stocks, could be an ideal dividend exchange traded fund for conservative income investors to consider in 2018.

HDV follows the Morningstar Dividend Yield Focus Index. In 2014, HDV became a member of the iShares core suite of ETFs and its addition to the iShares core suite came a dramatic fee reduction that took the ETF’s annual expense ratio to 0.12% from 0.4%.

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HDV “is a fund that focuses on companies that display two quality characteristics – they have at least some degree of an economic moat and are far from in financial distress,” reports ETF Daily News. “These factors are quantified using Morningstar’s Economic Moat rating and Distance to Default score. Companies that meet these screening criteria and then ranking by their dividend yield. The 75 highest yielding companies qualify for the fund. This strategy ends up producing a portfolio of mature, cash-rich companies with above average dividend yields.”

Companies that have consistently increased dividends tend to be high in quality and show a strong potential for growth. These dividend growers have been able to withstand periods of market duress, exhibiting smaller drawdowns as investors sold off riskier assets, while still delivering strong returns on the upside, to generate improved risk-adjusted returns over the long haul.

The $6.64 billion HDV also allocates nearly 20% of its weight to the resurgent energy sector while featuring a 15.2% weight to high-yielding telecommunications stocks. HDV’s technology weight is fair at 12.2%.

“Not surprisingly, HDV is considerably less risky than the S&P 500. Looking at either its beta or standard deviation of returns, the fund would be expected to drop less than the market during down markets. The downside of this is that the fund would also be expected to underperform during bull markets, which is exactly what we’ve seen from HDV over the past several years,” according to ETF Daily News.

HDV has a beta of 1.1 and a three-year standard deviation of just 8.9%, which is below the standard deviation on the S&P 500. The ETF’s trailing 12-month dividend yield is nearly 3.3%, well above what investors find on the S&P 500 and 10-year U.S. Treasuries. HDV is flat to start 2018.

For more on Smart Beta ETFs, visit the Smart Beta Channel home page.

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