The combination of a high dividend yield and above-average dividend growth can be difficult to find in the current environment. Interest rates remain near historic lows lending to below-average dividend yields and revenue growth has been slowing in recent quarters.
A new ETF launched last week attempts to offer investors the highly sought after combination. The RevenueShares Ultra Dividend ETF (NYSE: RDIV) is comprised of the top 60 dividend yielding stocks in the S&P 900 Index.
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The average 12-month trailing dividend yield in each of the previous four quarters is used to determine the 60 highest yielding stocks. Once the stocks are selected they are ranked by top line revenue, instead of the traditional market capitalization.
The current dividend yield on the ETF is 4.92 percent; nearly double the yield on the 10-year U.S. Treasury bond and more than double the yield on the S&P 500. A beta of 1.15 implies the ETF will have slightly more volatility than the overall market. The net expense ratio is 0.49 percent.
Due to its concentration on finding the top dividend yielding stocks, the utility sector is heavily weighted with a 39 percent allocation, followed by telecom at 17 percent. The top holdings include Lockheed Martin Corp (NYSE:LMT), AT&T (NYSE:T), and Duke Energy (NYSE:DUK). The three top holdings of the S&P 500 did not make the cut for RDIV due to the lack of high dividend yields.
While there are already a handful of ETFs that concentrate on investing in large-cap dividend stocks, RDIV differentiates itself with the revenue aspect. For example, the Vanguard Dividend Appreciation ETF (NYSE:VIG) has $20 billion in net assets, however the dividend yield is a mere 2.1 percent and revenue is not a factor when allocating the holdings.
The introduction of RDIV will likely be met with some open arms from long-term investors that are looking to achieve high income without giving up the fundamental aspects. The biggest risk is the over allocation to the utility and telecom sectors. Investors must ask themselves if the risk is worth the dividend/revenue exposure.
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