New ETF Ideas For Dividend Growth

January 15, 2016 8:43 am
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After several years of stellar dividend growth, including some near record-breaking years, S&P 500 companies are expected to deliver slower payout growth in 2016.

That does not mean the case for dividend exchange-traded funds has eroded. It does, however, mean investors should explore those ETFs with the ability to deliver consistent dividend across multiple market environments.

New Offerings

A pair of new dividend ETFs could prove up to that challenge. Reality Shares DIVCON Dividend Defender ETF (BATS: DFND) and the Reality Shares DIVCON Dividend Guard ETF (BATS: GARD) debuted Thursday courtesy of San Diego-based Reality Shares. The two new ETFs adhere to Reality Shares' DIVCON dividend rating system.

Related Link: How Will Dividend Stocks Perform This Year?


“DIVCON is a proprietary dividend health rating methodology which systematically ranks companies' future dividend growth prospects based on a weighted average of seven quality factors correlated to dividend growth,” said Reality Shares in a statement.


The Reality Shares DIVCON Dividend Defender ETF is a long/short that holds 75 percent of its portfolio in U.S. large-caps with the highest probability of boosting payouts over the next year. DFND also has 25 percent short position in the U.S. large-caps with the greatest likelihood of negative dividend action over the next 12 months.

Not surprisingly, the DFND is currently short the energy and materials sectors, home to the bulk of the negative dividend action in the S&P 500 last year. The new ETF's largest short position at the sector level is nearly 11 percent in utilities. DFND's largest long positions include McKesson Corporation (NYSE: MCK), Broadcom Corporation (NASDAQ: BRCM) and Waste Management, Inc. (NYSE: WM).


The Reality Shares DIVCON Dividend Guard ETF can be seen as a traditional dividend ETF with a significant twist. In sanguine market environments, GARD can be 100 percent long invested in U.S. large-caps with the highest probability of increasing dividends within the next 12 months. But, in more volatile market settings when the Reality Shares Dividend Guard Indicator shifts negative, GARD can shift to 50 percent long/50 percent short with the short positions focusing on those companies with a high probability of cutting dividends in the next year.

The new ETF is currently almost evenly split with just over 46 percent of its portfolio sold short and just over 47 percent allocated to long positions. GARD's short positions are spread across the utilities, materials, energy and telecom sectors.

Both new ETFs charge 0.95 percent per year, or $95 for each $10,000 invested.

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