Don't Overlook This Dividend ETF
Investors have been returning to dividend exchange traded funds in a big way, but the dividend funds drawing the most attention are the usual suspects.
Income investors looking for more unique approaches to dividend stocks may want to consider some hidden gems, including the RiverFront Dynamic US Dividend Advantage ETF (NYSE:RFDA).
RFDA debuted nearly two years ago as part of partnership between ALPS Portfolio Solutions and RiverFront Investment Group. The fund, which has almost $113 million in assets under management, is actively managed. While actively managed, RFDA's methodology also frames its a multifactor fund.
“RiverFront will consider multiple proprietary factors within each core attribute, such as the price-to-book value of a security when determining value, a company’s cash as a percentage of the company’s market capitalization when determining quality and a security’s three month relative price change when determining momentum,” according to ALPS.
Dividend Growth Potential
RFDA has a trailing 12-month dividend yield of 2.24 percent. That is better than what investors find on the S&P 500, but not so high as to qualify the fund as a high-dividend strategy. RFDA's active management style includes avoiding companies that are sporting some of the signs of potentially negative dividend action.
While S&P 500 dividend action has been mostly positive in recent years, RFDA is lightly allocated to high-yield sectors that are viewed as vulnerable in rising interest rate environments. The ETF devotes just 3.4 percent of its weight to utilities stocks, a sector that is often a major part of high-dividend ETFs. RFDA's combined weight in the real estate and telecommunications sectors is just 6.66 percent.
Rather, RFDA devotes nearly 41 percent of its weight to the financial services and technology sectors, two of the best destinations for dividend growth over the past several years. Consumer discretionary and health care, two sectors with favorable quality and dividend growth traits, combine for 27.34 percent of RFDA's roster.
Interestingly, not all of RFDA's components are dividend payers. The ETF features exposure to Amazon.com Inc. (NASDAQ:AMZN), Netflix, Inc. (NASDAQ:NFLX) and Facebook Inc. (NASDAQ:FB), among other non-dividend stocks.
Focusing On Quality
While yield is part of RFDA's focus, the fund's management team employs a quality screen to limit the chances of dividend cutters finding their way into the portfolio, a move that can potentially reduce volatility over time.
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