A Dividend ETF That Merits a Look
If you have done any research on exchange-traded funds in the last few months, you've probably glanced at more than a few so-called dividend ETFs, that is, funds designed to one way or another have a higher yield than that of the broad market.
Some of my past articles have likely contributed to the glut of dividend ETF information out there, but there is one fund I know about that gets almost no notice, no news coverage and virtually no volume: the First Trust Morningstar Dividend Leaders Index Fund (FDL).
This fund could be poised for good growth over the next year, especially because of its unique weighting toward mega-cap stocks, and I believe it deserves attention.
The ETF's prospectus states that its stock-selection process is proprietary, but that for a stock to be considered, it must pay dividends that are qualified for the 15% tax rate, have five years of dividend growth "greater than or equal to zero" and have a coverage ratio greater than 1. From there, the description gets even more opaque.Unlike most dividend ETFs, FDL makes some relatively large bets on a few stocks. Bank of America (BAC) is the largest holding, at 9.79%, followed by Citigroup (C) at 9.36% and Pfizer at (PFE) at 9.07%. There are six stocks each with greater than 5% weight in the fund, and the top 10 stocks comprise 65% of the ETF. The other 90 holdings are spread across the remaining 35% of the fund. Like all dividend ETFs, FDL is heaviest in financials, at 36.73%, and utilities, which make up 13.15% of holdings. Unlike most other dividend ETFs, though, FDL is heavy in telecom and health care, which come in at 16.94% and 16.74%, respectively. As the chart below shows, FDL has soundly outperformed both the PowerShares High Yield Equity Dividend Achievers Portfolio (PEY) and the iShares DJ Select Dividend Index Fund (DVY) for the last six months, which is the period of time FDL has been trading.
|First Trust Morningstar Dividend Leaders Index Fund
Makes some relatively large bets on a few stocks
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV