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A New Spin on Dividend ETFs


Although U.S. stocks have traded noticeably higher this year, dividend investing is getting almost as much, if not more attention than some high-beta, growth sectors. Yet despite thousands of positive dividend actions by U.S. companies this year and billions of dollars of inflows to dividend ETFs, just one in five S&P 500 companies had dividend yields above 10-year U.S. Treasuries as of September 25, according to Bank of America Merrill Lynch.

Yields on 10-year Treasuries have declined in recent weeks, but at 2.64%, that yield is still well above some popular dividend ETFs. For example, the Vanguard Dividend Appreciation ETF (VIG) yields just 2.16%. The new RevenueShares Ultra Dividend Fund (RDIV) helps investors solve the low yield dividend ETF conundrum. [Dividend ETFs for the Long-Term]

The RevenueShares Ultra Dividend Fund debuted Tuesday and keeps with its issuer’s tradition of using a revenue weighting methodology. In fact, RDIV is the first revenue weighted ETF. RDIV’s “index is weighted by top-line company revenue to emphasize constituents with high current yields that can be expected to drive price appreciation and dividend growth. RDIV is diversified among growth and income-oriented market sectors, as well as among large- and mid-cap companies,” according to a statement.

RDIV’s underlying index is the RevenueShares Ultra Dividend Index, which sported a whopping 4.92% yield as of September 30, according to the issuer.

The index takes the 60 highest yielding stocks in the S&P 900 (the combined S&P 500 and S&P 400 Mid-Cap Index) based on average quarterly yield for the trailing 12 months and then weights the stocks by company revenue.

While RDIV does not follow the dividend increase methodology made popular by other dividend ETFs like VIG, eight of the new ETF’s top 10 holdings grew their dividend distributions on an annualized basis from 2007 to 2012, while 60% of all index constituents increased their dividend distributions over the same period.

Not surprisingly, RDIV is heavily allocated to high-yield sectors such as consumer staples, telecom and utilities.  While those sectors have been preferred destinations for conservative income investors over the years, the recent tapering-induced spike in Treasury yields exposed those sectors as vulnerable in rising rate environments. [Dividend ETFs With Growing Yield Potential]

The new ETF has annual fees of 0.49%.

ETF Trends editorial team contributed to this post.

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.