Koesterich Bullish On Dividend ETFs (HDV, DVYE, DVY)
Following up on a strong 2011 that saw $50.2 billion in dividend increases, according to Standard & Poor's data, dividend increases surged to a record $24.2 billion in the first quarter of 2012, a year-over-year increase of almost 28% and the good times haven't stopped there. As one example, in the last week of April alone, more than 20 companies increased their payouts.
Of course this works out to be good news for income investors and higher payouts serves to increase the allure of the myriad dividend ETFs on the market today. Recent market volatility underscores the advantages of defensive dividend stocks and ETFs and it is that defensive approach that could serve investors well going forward.
After all, "dividend stocks generally have been less volatile than the broader market, which can make them a good defensive choice," according to iShares Global Chief Investment Strategist Russ Koesterich.
"Since 1992, the beta of the Dow Jones Select Dividend Index to the S&P 500 has been around 0.8. That means that for every 1% the market moves this index typically moves around 80 basis points," Koesterich said in a recent note on the iShares blog.
The $10 billion iShares Dow Jones Select Dividend Index Fund (NYSE: DVY) is the ETF that tracks the Dow Jones U.S. Select Dividend Index. DVY is home to 101 stocks and has an annual expense ratio of 0.4%. Top-10 holdings include Lockheed Martin (NYSE: LMT), Chevron (NYSE: CVX) and McDonald's (NYSE: MCD).
The lower beta theme is also seen with emerging markets dividend payers. "For instance, the Dow Jones Emerging Markets Select Dividend Index has a beta of roughly 0.80 to the broader MSCI Emerging Market Index," Koesterich noted.
The iShares Emerging Markets Dividend Index Fund (NYSE: DVYE) is the ETF that tracks that index. DVYE, which made its debut in late February, is also home to 101 stocks and charges 0.49%. The fund has proven somewhat popular with investors, raking in $16.9 million in AUM in a tough environment for emerging markets stocks.
With a 30-day SEC yield north of 6%, DVYE allocates 49% of its country weight to Taiwan, Brazil and South Africa.
Koesterich also said he likes the $1.49 billion iShares High Dividend Equity Fund (NYSE: HDV). HDV charges 0.4% and is home to 75 stocks. The fund has a 30-day SEC yield of 3.7% and its top-10 holdings include AT&T (NYSE: T), Pfizer (NYSE: PFE) and Procter & Gamble (NYSE: PG).
The share of companies issuing dividends jumped to 41.7% in the first quarter of 2012, up from 41.4% at the end of the fourth quarter of 2011, according to S&P data.
Other popular dividend ETFs to consider include the Vanguard High Dividend Yield Index ETF (NYSE: VYM) and the SPDR S&P Dividend ETF (NYSE: SDY), both of which were recently rated Overweight by S&P Capital IQ.
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