There are plenty of dividend ETFs on the market today. Add in those funds that offer exposure to MLPs, REITs and preferred stocks and the number of options for income investors grows even larger. There are also a few funds, such as the PowerShares Buyback Achiever Portfolio (PKW) , that focus on companies that are prodigious repurchasers of their own shares.
There are not many ETFs that combine both avenues of shareholder rewards – buybacks and dividends – but one new actively managed ETF is changing that. The Cambria Shareholder Yield ETF (SYLD) , which debuted in mid-May, goes beyond traditional screening based solely on dividends or yield. [A New Shareholder Yield ETF]
SYLD, co-managed by The Ivy Portfolio author Mebane Faber, takes one of the more unique approaches to generating yield in the ETF arena. Specifically, SYLD invests in 100 stocks with market caps greater than $200 million that rank among the highest in (a) paying cash dividends, (b) engaging in net share repurchases, and (c) paying down debt on their balance sheets, according the fund issuer.
Although SYLD is not explicitly designed to focus on companies that have long-standing track records of raising dividends, the funds has the potential to be a compelling way for investors to access future dividend growth. For example, financials and technology combine for 35% of the SYLD’s sector weight. Tech has accounted for the majority of dividend increases over the past five years and is now the largest dividend-paying sector in the U.S. Financial services has been the fastest-growing dividend sector over the past three years.
Conversely, and arguably just as important, is the fact that SYLD is light on sectors such as telecom and utilities that could prove vulnerable in a rising rate environment. Compared other large dividend ETFs, SYLD also has a relatively light allocation of 13% to consumer staples, which is something to consider if the U.S. dollar continues to strength, weighing on earnings at staples companies with significant international exposure. [Utilities Drag on Low Volatility ETFs]
SYLD also uses an equal-weight approach that results in no individual holding receiving a weight above 1.19%. Top-10 holdings include Boston Scientifc (BSX), State Street (STT) and Dow component American Express (AXP).
Eric Richardson, Cambria’s Chief Executive Officer, will co-manage the new ETF along with Faber.
“While the high yield ETF space has become crowded, we hope SYLD will disrupt the market and open the eyes of investors to a more holistic approach to income investing,” Richardson said in an interview with ETF Trends last month.
SYLD charges an annual expense ratio of 0.59%, which is decent in the world of actively managed ETFs.
ETF Trends editorial team contributed to this report.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.