Earlier this year, it appeared the Federal Reserve's plans to continue tightening monetary policy would weigh on dividend stocks and corresponding exchange traded funds. Although the Fed has hiked interest rates twice and bond markets are pricing in two more rate increases before the end of 2018, some dividend ETFs are delivering solid performances this year.
This year's group of steady dividend ETFs includes the Fidelity High Dividend ETF FDVV, which turns two years old next month.
What Happened
FDVV is doing an admirable job of gaining traction with advisors and investors. The ETF is just a few weeks shy of its second birthday and, as of Aug. 17, has $184.50 million in assets under management, according to issuer data.
FDVV tracks the Fidelity Core Dividend Index. That benchmark is a collection of domestic large- and mid-cap dividend payers. Over three-quarters of the fund is allocated to large-cap stocks, while nearly 18 percent is dedicated to mid-caps.
Why It's Important
The name implies that FDVV is a high-dividend fund, a strategy that is often heavily reliant on sectors that are inversely correlated to rising Treasury yields. That includes consumer staples, real estate and utilities. Indeed, FDVV allocates about 30 percent of its combined weight to the rate-sensitive real estate, telecommunications and utilities sectors, but devotes almost 40 percent to the cyclical financial services and technology sectors.
FDVV is up almost 7.5 percent year-to-date and hit an all-time high last Friday. By comparison, the more yield-focused Morningstar Dividend Yield Focus Index is trading slightly lower on a year-to-date basis.
FDVV's methodology tilts toward expected dividend growth, but the fund still yields a stout 3.63 percent on a trailing 12-month basis.
What's Next
FDVV could continue proving to be a solid dividend idea in the current idea. Many of the ETF's marquee holdings already have or likely will increase payouts before the end of 2018, underscoring the fund's dividend growth leaning.
Additionally, a significant portion of the fund's sector allocations derive substantial chunks of their revenue on a domestic basis, a trait that provides FDVV with some insulation from the stronger dollar.
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