Under The Hood: A New Dividend ETF Diva
One of the most prominent themes in the exchange-traded products business last year was the rapid proliferation of and generally enthusiastic reception of new dividend ETFs. On the year, dividend ETFs raked in $9 billion in fresh assets and those inflows benefited both established and rookie funds.
With the population of dividend ETFs steadily increasing, it is not surprising that a few funds, particularly among the new crop, go unnoticed. That should not be the case with the PowerShares S&P 500 High Dividend Portfolio (NYSE: SPHD), which debuted in October.
Since its October debut, the PowerShares S&P 500 High Dividend Portfolio has managed to attract $61 million in assets under management. Not a bad tally for a five-month old ETF, but more importantly, SPHD has delivered the goods in terms of performance and yield. The fund is up 4.4 percent since inception and currently sports a 30-day SEC yield of 4.2 percent.
SPHD does use a fairly unique methodology to generate returns. The ETF tracks the S&P 500 Low Volatility High Dividend Index, which is composed of 50 securities traded on the S&P 500 Index that historically have provided high dividend yields and low volatility, according to PowerShares.
As is the case with its low volatility cousin, the PowerShares S&P 500 Low Volatility ETF (NYSE: SPLV), SPHD devotes a significant portion of its weight to the utilities and consumer staples sectors. Regarding SPHD, those two sectors combine for almost 27 percent of the ETF’s overall weight. Financials and health care combine for another 27 percent.
Intentional or not, many of SPHD’s 50 holdings can be labeled as “blue chips” and that means investors will likely be familiar with many of the ETF’s constituents. Top-10 holdings include Abbott Labs (NYSE: ABT), Altria (NYSE: MO) and AT&T (NYSE: T). Overall, SPHD is home to nine members of the Dow Jones Industrial Average.
SPHD is rebalanced twice a year, in January and July, and how the fund looks following the next rebalancing will be worth watching for at least two reasons. First, H.J. Heinz (NYSE: HNZ), an SPHD holding, is being acquired. Second, top-10 holding Centurylink (NYSE: CTL) recently cut its quarterly dividend to 54 cents a share from 72.5 cents a share.
Based on the new dividend and Tuesday’s closing price, Centurylink still yields over six percent and it should be noted SPHD does not screen based on dividend increases or cuts. However, the combination of a lower market capitalization and increased volatility likely means Centurylink is heading for a lower weighting in SPHD.
Still, investors should not get caught up on the struggles of one stock when it only accounts for 2.42 percent of an ETF’s weight.
With a spate of dividend increases from SPHD likely to come over the next few months, think Johnson & Johnson (NYSE: JNJ), Altria and others, this ETF has the potential to be a conservative investor’s friend in 2013.
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