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Summary FVD offers a dividend yield of 2.17%, which is fairly low for being included in the discussion of dividend ETFs. The top several holdings include heavy exposure to the major oil companies. The expense ratio is quite dreadful. The sector allocations look great for a dividend ETF, which seems ironic given the weak yield on the fund. The First Trust Value Line Dividend ETF (NYSEARCA: FVD ) looks great for sector allocations, pretty good for individual companies, and weak for yield, and painful for the expense ratio. That is one of the most mixed bags I’ve found when reviewing dividend ETFs. I’ve found ones that are good, ones that seem poorly designed, and ones that are all around average. I rarely see such strong contradicting signals though. Expenses The expense ratio is a .75% on the gross level and .70% on the net level. Is it any surprise I’m not loving the expense ratio? Dividend Yield The dividend yield is currently running 2.17%. That seems strange for a dividend ETF, but I’ve seen low yields on dividend ETFs before so I won’t dwell on it. Holdings I grabbed the following chart to demonstrate the weight of the top 10 holdings: I love seeing Exxon Mobil (NYSE: XOM ) as a top holding. Investors may be concerned about cheap gas being here to stay, but I think money in politics will be around decades (centuries?) longer than cheap gas. Bet against big oil at your own peril. I can say the same about liking Chevron (NYSE: CVX ) and ConocoPhillips (NYSE: COP ). These companies offer investors a good way to benefit from high as prices which would generally be a drag on the rest of the economy and on the personal expenditures of consumers. As we go farther down the list there are a couple of high quality equity REITs incorporated into the portfolio. I should note that while these allocations are fairly far down the list, their allocations are still higher than .58% and the second heaviest weighting is only .63%, so being far down on the list doesn’t mean much in terms of weighting. The high quality equity REITs I see here are Realty Income Corporation (NYSE: O ) and Public Storage (NYSE: PSA ). Realty Income Corporation is a monthly pay equity REIT that runs a triple net lease structure. In short, they are buying up commercial properties and renting them out to businesses. The company has exceptionally high credit standards and screens applicants to reduce their risk of having renters default on the contract. Public Storage on the other hand has a fairly simple business in terms of renting out storage space. This can be a fairly attractive space because there aren’t too many REITs competing in the space which reduces the need for price based competition. Sectors (click to enlarge) The very heavy allocation to utilities is great for investors that don’t already have the exposure in their portfolio. Utilities tend to have a lower correlation with the rest of the domestic market and generate significant income for shareholders which causes them to also have some correlation with the bond markets since investors interested in income are able to pick between bonds and utilities. The high allocation to financials is a bit higher than I’d like to see since equity REITs are only a few of the positions. Most of the financials exposure is coming from the more traditional sources such as banks. Heavy exposure to consumer staples is another positive aspect in my opinion since it makes the portfolio more resistant to selling off during negative market events. Telecommunications usually gets a much heavier weight in dividend portfolios due to the presence of AT&T (NYSE: T ) and Verizon (NYSE: VZ ), but the weighting strategy for this fund giving most equity positions allocations around .6% has resulted in those two companies combining to be only 1.14% of the portfolio. Suggestions I wouldn’t mind seeing this portfolio show a slightly higher allocation to a few dividend champions such as Pepsi (NYSE: PEP ) or Coke (NYSE: KO ). I wouldn’t mind seeing the oil companies get slightly higher allocations either. The final modification would be increasing the presence of sin companies in the portfolio by overweight companies like Altria Group (NYSE: MO ). Of course, this runs contrary to the ETF’s strategy of aiming to have their holdings be roughly equally weighted. Conclusion Overall I like the portfolio that has been created, but the weighting methodology creates the possibility of material changes in the allocation from period to period. There are several companies that were selected by the ETF’s methodology that also meet my definitions for attractive dividend payers, but I’d really like to see the strategy implemented with a lower expense ratio even if that required sacrifices such as less frequent rebalancing of the portfolio. Scalper1 News
Scalper1 News