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New Tech-Based ETF Is Heavy on Dividends, Light on Apple

Stocks in this article: XLKQCOMMSFTIBMINTCCSCO

NEW YORK ( TheStreet) -- Many investors know that dividends have become increasingly popular in the last couple of years under the weight of diminished expectations for equity market growth. There are certain sectors of the market, like utilities, that can be relied upon for dividends.

Technology has not been one of those sectors until recently. Now, however, investors can access tech dividends in the ETF space through the First Trust Nasdaq Technology Index Fund (TDIV).

The fund is probably best compared to the Technology Sector SPDR (XLK) because both funds own mostly technology stocks with a small percentage in telecom stocks. TDIV actually targets 80% in tech stocks and 20% in telecom.

The methodology underlying the fund builds a universe of stocks that have a market cap of at least $500 million, yield at least 0.5%, have not cut their dividend and have a minimum trading volume. The next step is to weight the stocks in this universe by market, not dividend yield, so the largest holdings are very familiar names like Qualcom (QCOM), Microsoft (MSFT), IBM (IBM), Intel (INTC) and Cisco (CSCO) which all have about a 7% target weight in the fund.

Of those five stocks only INTC has had a yield above 3%, Cisco just increased its dividend and it now should be 3%, so it was surprising to hear from First Trust that the index yield is currently "just above 3%" but after a closer review it looks like much of the yield will be attributed to telecom stocks like Vodaphone (VOD), AT&T (T), Century Link (CTL) and Verizon (VZ) along with some other high yielding telecom stocks. Like utilities, telecom is also a good source for yield.

The above telecom stocks only have 2% weightings in the fund but their yields range from 4.5% to 6.8% and there are some other telecom stocks in the fund that have similarly high yields.

The expense ratio for TDIV is 0.50% so an index yield of close to 3% would imply that the fund will yield 2.5%. But, as is the case with any new ETF, there can be no certainty of what the actual yield will be.

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