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