S&P Likes Two Dividend ETFs, One Not So Much (SDY, VYM, ICF)
In a volatile, yield-starved environment, investors continue to embrace dividend stocks and ETFs and fund sponsors are meeting the demand with a steady stream of new product introductions.
Still, it's the more seasoned funds that generally command much of the attention in the dividend ETF space and S&P Capital IQ is out with a research note highlighting three of those funds.
"As Treasury bond yields remain relatively low, we think investors and advisors continue to look for alternative ways to generate income. We believe a number of dividend-yielding exchange-traded funds (ETFs) are filling part of the void, but we strongly recommend that investors not just choose an ETF that offers the highest yield, but instead look closely at what's inside the fund's portfolio. Because the prospects for the underlying holdings are going to be a key driver," S&P said in the note.
In the note, S&P praises two ETF, the Vanguard High Dividend Yield Index ETF (NYSE: VYM) and the SPDR S&P Dividend ETF (NYSE: SDY), rating both funds Overweight. S&P is not as bullish on the iShares Cohen & Steers Realty Majors ETF (NYSE: ICF), giving that fund an Underweight rating.
ICF, which has almost $2.8 billion in assets under management and currently yields 2.87%, is home to 31 stocks and an expense ratio of 0.35%. S&P said ICF "has a high standard deviation and owns many stocks that are viewed as unattractive according to S&P Fair Value, such as Equity Residential (NYSE: EQR)." The fund is up over 9% year-to-date.
SDY's "top ranking from S&P Capital IQ stems from its ownership of stocks that have above-average S&P Quality Rankings, its below-average standard deviation of 14.9, its modest expense ratio of 0.35% and its tight bid/ask spread," S&P said. Home to 62 stocks, SDY has over $9.2 billion in AUM and currently yields 3.13%. Top-10 holdings include AT&T (NYSE: T), Abbott Labs (NYSE: ABT) and Kimberly Clark (NYSE: KMB). Consumer staples account for almost 20% of the fund's weight while financials chime in at almost 19%.
Regarding the Vanguard High Dividend Yield Indx ETF, S&P said "It too looks favorable to us for its high S&P Quality Rankings, modest standard deviation of 14.4, a low expense ratio of 0.13% and a tight bid/ask spread. But VYM's holdings also have above-average S&P STARS rankings from S&P Capital IQ equity analysts, and strong investment-grade credit ratings from Standard & Poor's Ratings Services."
VYM is home over $3 billion in AUM and nearly 440 stocks. All of the fund's top-10 holdings are members of the Dow Jones Industrial Average, including Exxon Mobil (NYSE: XOM), Microsoft (Nasdaq: MSFT) and Chevron (NYSE: CVX) in that order.
Prior to the start of trading today, SDY was up 5.3% year-to-date while VYM was up 6.7%.
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