Tag Archives: dividend

Sizemore Capital 4th Quarter 2015 Letter To Investors

I wasn’t sad to see 2015 end. It was called “the year that nothing worked.” And while that’s not entirely true – if you happened to be long the “FANG” stocks Facebook (NASDAQ: FB ), Amazon (NASDAQ: AMZN ), Netflix (NASDAQ: NFLX ) and Google (NASDAQ: GOOG ) (NASDAQ: GOOGL ), you did quite well – it was certainly true for my Dividend Growth portfolio. The strategy had a poor second half to the year, erasing the gains of the first half and leaving it with a loss of 11.3% for the full year net of fees. And the volatility didn’t end on December 31; it spilled over into January. As I’m writing this letter, the maximum drawdown from the April 2015 highs to the mid-January lows was a gut wrenching 27.6%. That might be tolerable if I were running an aggressive growth portfolio full of speculative names. But I distinctly built my Dividend Growth model with low volatility in mind. The portfolio entered the year with a beta of 80%. In layman’s terms, that means that the Dividend Growth portfolio was about 20% less volatile than the broader market. And with an R-squared that generally stays in the 60s or 70s, the portfolio’s correlation to the broader market has historically been low. This is a portfolio designed to march to the beat of its own drum, regardless of the direction of the market. So, what happened? And more importantly, what is the outlook for 2016? I’ll address each of those questions. The short answer is that we got bogged down in a credit crunch and that the portfolio should enjoy a nice recovery once credit conditions return to “normal.” Now let’s get into the details. What Went Right in 2015 Let’s take a moment to review the Dividend Growth portfolio’s mandate. Its primary objective is to provide a high and growing stream of income. And on this count, the portfolio delivered. The portfolio started 2015 with a trailing dividend yield of 4.8%, more than double the dividend yield of the S&P 500. And we achieved very respectable dividend growth: Total cash received from dividends in 2015 was up 8.7% over 2014. We had two stocks – Kinder Morgan (NYSE: KMI ) and Teekay (NYSE: TK ) – take us by surprise with dividend cuts. But portfolio wide, the theme was one of growing dividend payouts. I’m willing to stomach quite a bit of market volatility if I’m confident that the stocks I own will continue to deliver a reliable dividend stream to my investors. Providing income in retirement or dividend compounding at younger ages are my primary objectives, after all. But it’s hard to enjoy that income when you see the value of your portfolio grinding lower every day. What Went Wrong in 2015 Where do I start. REITs started to come under pressure in the first quarter due to fears that (eventual) Fed tightening would raise their cost of capital. REITs started to stabilize…right about the time that oil took a major leg down and dragged the entire MLP sector with it. Then China started to buckle, and several of my standard divided-paying stocks started to sell off due to their exposure to China. And all throughout the year, there was nearly continuous selling of mortgage REITs, business development companies and closed-end bond funds, mostly due to fear of Fed tightening. But what really hurt my returns was the implosion of the MLP sector in the last two months of the year. MLPs depend on stock and bond sales to fund growth. During the boom years, the bond market all but tripped over itself giving cheap financing to the midstream pipeline MLPs. But when the bond vigilantes sobered up and noticed the junk bond market’s exposure to oil and gas exploration companies, yields began to rise and credit ratings came under scrutiny…even for the quality names in our portfolio. And I should emphasize here again that the MLPs we owned throughout 2015 were the blue chips of the midstream segment. Kinder Morgan faced a choice: Either they kept the dividend intact and sacrificed growth…or they cut the dividend and used the saved cash to “self-fund” their growth projects for the future. Kinder opted to cut the dividend, sending the entire sector reeling. (Teekay faced a similar issue. They worried that, in the current credit market, one of their subsidiaries wouldn’t be able to roll over a large maturing bond issue. So they opted to conserve cash and avoid the capital markets altogether.) To show how quickly things change, as recently as the summer both Kinder Morgan and Teekay raised their dividends and gave every indication that more dividend growth was coming. My, what a difference a couple months can make. If there is an underlying theme here, it is credit. The sectors of my portfolio that got hit the hardest – MLPs, small and mid-cap REITs, business development companies and mortgage REITs – were the sectors most dependent on financing. We had a slow-motion crisis throughout 2015 that effectively took a wrecking ball to all of these sectors indiscriminately. The good news here is that the underlying business fundamentals haven’t changed. The midstream MLPs continue to build out their highly-profitable empires. The small and mid-cap REITs continue to collect their rent checks and pass them along to investors as dividends. Defaults remain very low in our one business development company, Prospect Capital (NASDAQ: PSEC ). And the mortgage REIT and closed-end bond fund sectors continue to throw off a ton of cash while trading at some of the deepest discounts in history. Credit conditions will normalize in 2016. And when they do, investors will rush back into these high-income sectors for lack of a better place to park their funds. Nature hates a vacuum, and high dividend yields will not remain unnoticed for long, particularly when the 10-year Treasury is yielding a pitiful 2.1% at time of writing. I don’t know how long this will take. But I do know that we’re being paid handsomely to wait. Potential Surprises Despite the Dividend Growth portfolio’s conservative nature, we have several positions that I believe have the potential to double or more in the coming year. Prospect Capital trades for an almost pitiful 60% of book value. A narrowing of this discount combined with the ridiculous 17% dividend yield can get us to 100% profits very quickly. Could Prospect slash its dividend? Perhaps. But as of its last earnings release, it was comfortably covering its dividend, so I don’t see this as being likely over the next several quarters. Likewise, Energy Transfer Equity (NYSE: ETE ) is down by more than 70% at time of writing and now yields a ridiculous 12%. As ETE struggles to complete its takeover, a reduction of the dividend can’t be completely ruled out. But we really need to consider the big picture here. The new post-merger ETE will be the biggest pipeline empire in the world and will be a cash-flow-generating powerhouse. Any reduction of the dividend would be a temporary means to an end to make the merger happen. When ETE traded at $35, I believed that it could be worth $70 per share within a few years. While that might sound a little aggressive right now given that the stock trades for less than $10, I still consider it reasonable, at least by the end of this decade. From today’s prices, that would represent a more than 600% return. Similarly, Teekay is down nearly 90% from its all-time highs. (I added it to the portfolio after it had already dropped by nearly a third.) When Teekay traded at $35 per share, I believed that it would be worth upwards of $70 per share by 2020. That figure might not be attainable at this point given that the deleveraged Teekay will be raising its dividend at a much more modest rate. But considering that Teekay trades at a 25% discount to its tangible book value, it’s hard to see this stock doing poorly starting at these prices. The stock could safely triple from current prices even at the reduced dividend payout. Once Teekay’s subsidiary MLPs restart their distribution growth, I expect Teekay Corp to jump like a coiled spring. Even Apple (NASDAQ: AAPL ) has the potential to jump by 50% or more over the next 12-18 months. Apple stock has sold off aggressively on fears that iPhone sales growth is sagging. Well, yes. iPhone growth will slow. We all knew this. The iPhone 6 windfall was a one-time event, as it was the first large-screen iPhone that could compete with some of the larger Android handsets. No one in their right mind expected that kind of growth to continue. But the thing is, Apple’s stock was never priced with that assumption. When you strip out Apple’s gargantuan cash position, the stock trades at a mid-single-digit price/earnings ratio. That is ludicrous pricing. Carl Icahn believes that Apple is worth more than $200 per share. I agree, though I don’t expect a stock as large as Apple by market cap to get there overnight. But over the next 2-3 years, I consider that not only possible but extremely likely. Parting Thoughts I don’t know what 2016 will bring. When I look at the broader market, I don’t like what I see. Stocks are expensive relative to their cyclically adjusted price/earnings ratios, and this is looking to be a disappointing year on the earnings front. But in looking at the Dividend Growth portfolio, I’m far less concerned. Portfolio wide, we have a strong collection of dividend payers that I expect to significantly boost their payouts over the course of the year. While I don’t particularly like volatility, I don’t fear it. I prefer to view risk the way Benjamin Graham and Warren Buffett do: Not as volatility but as the potential for permanent or long-term loss. At today’s prices, I see very little of this risk in the Dividend Growth portfolio. Here’s to earning a solid return in 2016. Disclaimer : This article is for informational purposes only and should not be considered specific investment advice or as a solicitation to buy or sell any securities. Sizemore Capital personnel and clients will often have an interest in the securities mentioned. There is risk in any investment in traded securities, and all Sizemore Capital investment strategies have the possibility of loss. Past performance is no guarantee of future results. Original Post

BDCL Attractive With 21.5% Yield And Deep Component Discounts To Book Value

Summary BDCL’s quarterly dividend paid in January 2016 is projected to be $0.8216, an increase from October 2015 . On an annualized quarterly compounded basis the yield is 21.5%. While there are problems and high fees associated with some of the business development companies, the discounts to book value and high yields make BDCL attractive. The ETRACS 2xLeveraged Long Wells Fargo Business Development Company ETN (NYSEARCA: BDCL ) will soon be declaring its dividend for the quarter ending December 31, 2015. The dividend will be paid in January 2016. BDCL is an exchanged-traded note that employs 2X leverage to generate exceptionally high yields. Most of the 44 Business Development Companies that comprise the index portfolio upon which BDCL is based have announced dividends with ex-dates in the fourth quarter of 2015. American Capital Ltd. (NASDAQ: ACAS ) and Harris & Harris Group Inc. (NASDAQ: TINY ) do not pay dividends. Capital Southwest Corp. (NASDAQ: CSWC ) pays semiannually and did have an ex-date in the second quarter of 2015 but has declared one since, so I did not include it in the dividend calculation. Main Street Capital Corp (NYSE: MAIN ) pays $0.18 monthly and had a $0.275 special dividend in the fourth quarter of 2015 that is included in the dividend calculation. From 41 of the 44 Business Development Companies who pay dividends with ex-dates in the fourth quarter of 2015, I projected that BDCL’s quarterly dividend paid in January 2016 will be $0.8216. This is an increase of 5.6% from the quarterly $0.7782 dividend paid in September 2015. Most of the increase is due to the increase in the indicative or net asset value of BDCL from $15.6699 on September 30, 2015 to the current $16.5565. The dividend of a leveraged ETN is impacted by the rebalancing of the portfolio each month to bring the amount of leverage back to 2X. If the value of the portfolio declines, portfolio assets must be reduced to maintain the leverage level. This reduces the dividend, is in addition to any reductions from dividend cuts by any of the components in the portfolio. Conversely, if the prices of the component securities increases, the dividend paid by the ETN will increase even if the components of the ETN do not change their dividends. That was the case in the fourth quarter of 2015. The relationship between the net asset value of MORL and the dividend is explained more fully in: MORL’s Net Asset Value Rises – Implications For The Dividends. The table below shows the weight of each of the components of the index upon which BDCL is based. The prices are as of December 23, 2015. The weights are the latest on the BDCL website. The table also shows the dividend rate, the ex-dates, and the contribution by component of the components that pay dividends. In the frequency column “q” denotes quarterly, those that pay monthly have an “m”, and the semi-annual payers are denoted by “s”. Interestingly, the second-largest component of the index upon which BDCL is based, American Capital Ltd., with a weight of 11.51%, is one the 2 components that do not currently pay any dividends. The other component that does not currently pay dividends is TINY has a weight of 0.27%. Thus, 11.78% by weight of the components of BDCL do not pay any dividends now. If CSWC, with a weight of 2.3%, which has not declared a semi-annual dividend after last doing so on 04/24/2015, is included as a non-payer, then 14.08% by weight of the components of BDCL do not pay any dividends now Some readers have asked to see the details of my dividend calculations. I have changed my procedure, and now use the contribution by component method. It should give the exact same result as my previous method that could be called the total imputed dividends divided by the number of shares outstanding method. An example of that methodology using actual numbers can be seen in the article ” MORL Yielding 24.7% Based On Projected June Dividend “. In the total imputed dividends divided by the number of shares outstanding methodology, the number of shares outstanding appears both as a numerator and a denominator. Thus, the same result can be obtained by using the contribution by component method. This method involves multiplying the net asset value of BDCL by weight of each component with an ex-date during the month prior to the month in question, and then multiplying that product by 2 to account for the 2X leverage. That product is then divided by the share price of the component. This is an imputed value for how many shares of the component each share of BDCL represents. Multiplying the shares of the component per BDCL share times the dividend declared by the component gives the contribution by component for each component. Adding all of the contributions of all of the components with an ex-date in the month prior to the month for which the dividend is being computed and adjusting for expenses, gives a projection for the dividend. The index upon which BDCL is based is a float-adjusted, capitalization-weighted index that includes the Business Development Companies listed on the major exchanges. The fact that 14.08% of the companies that comprise BDCL are not currently paying dividends can be looked at with either a “glass is half full” or “glass half empty” perspective. On the bright side, there could be considerable room for an increase in the dividends paid by BDCL if those components not presently paying dividends were to resume them. On the other hand, the fact that 14.08% of the companies that comprise BDCL are not currently paying dividends could be seen as a warning that other components in the portfolio might also suspend dividends at some point in the future. The premise for using 2x leveraged ETNs such BDCL to generate high income is that the extra income resulting from the spread between the dividends paid by the components of index upon which the ETN is based and the interest effectively paid by the ETN on the leveraged portion, should offset any declines in price by the business development companies in the index upon which BEDCL is based. With BDCL the weighted average of the dividends paid by the business development companies that comprise the portfolio is about 10% on a non-compounded basis. With 2x leverage the dividend yield on BDCL, before compounding is the 10% paid by the portfolio plus the amount generated by the leverage spread which is currently 10% less the financing expense based on three-month LIBOR, now 0.6%. Thus, before compounding, the dividend yield will be approximately 10% + 19.6% = 19.6%. While the dividend yield on BDCL has been consistently above 20%, the prices of the business development companies that comprise the index upon which BDCL is based have declined so much that for some holding periods the total return on BDCL has actually been negative. This has exacerbated with the recent general aversion to most high-yielding securities whether they be junk bonds, mREITS or high-dividend closed-end funds. With BDCL, concerns over high fees and problems with specific business development companies in the index and that sector in general have caused BDCL to underperform the equity markets in recent months. This has led many of them to trade at large discounts to book value. Computing the book value for business development companies can be problematic since many of their assets are not publicly traded. However, the higher yielding business development companies that compose the index upon which BDCL is based are generally thought be at historically large discounts to book value. This, could allow the slide in the market prices of the business development companies to reverse at some point. The relatively high yield and high beta or systematic risk is consistent with the Capital Asset Pricing Model. One wrinkle is that for investors seeking higher yields, BDCL may actually be a relatively efficient diversifier, if those investors are now heavily invested in higher-yielding instruments that are very interest rate-sensitive. Previously, I pointed out in the article ” 17.8%-Yielding CEFL – Diversification On Top Of Diversification, Or Fees On Top Of Fees? ” that those investors who have significant portions of their portfolios in mREITs, and in particular, a leveraged basket of mREITs such as the UBS ETRACS Monthly Pay 2xLeveraged Mortgage REIT ETN (NYSEARCA: MORL ), could benefit from diversifying into an instrument that was highly correlated to SPY. The UBS ETRACS Monthly Pay 2xLeveraged Closed-End Fund ETN (NYSEARCA: CEFL ) is highly correlated to SPY, while only 5% of the variation in daily returns for MORL can be explained by the daily variation in the S&P index. Since CEFL yields almost as much as MORL, this suggests that a portfolio consisting of both MORL and CEFL would have almost as much yield as a portfolio with only MORL, but considerably less risk. Adding BDCL to such as portfolio could result in a more efficient risk/return profile. There is an unlevered fund that uses the same index as BDCL — the UBS ETRACS Wells Fargo Business Development Company ETN (NYSEARCA: BDCS ). BDCS could also be a good investment for those who want higher yields and want to use their own leverage to do so. Buying BDCS on a 50% margin would return a higher, or at least comparable, yield to buying BDCL for those who could borrow at LIBOR or some similar level. Many retail investors cannot borrow at interest rates low enough to make buying BDCS on margin a better proposition than buying BDCL. However, larger investors with access to low margin rates might do better by buying BDCS on margin. Even some small investors could do better buying BDCS rather than BDCL, in some cases. For example, an investor might have $10,000 in a brokerage account in a money market fund and want to get at least some return by investing a small part of the $10,000 in BDCL or BDCS. Most brokerage firms pay just 0.01% on money market funds. The annual return on $10,000, at 0.01%, is $1 per year. If this hypothetical investor were thinking of either investing $1,000 of his $10,000 in BDCL and keeping $9,000 in the money market fund, or investing $2,000 of his $10,000 in BDCS and keeping $8,000 in the money market fund, either choice would entail the same amount of risk and potential capital gain. This is because BDCL, being 2X leveraged, would be expected to move either way twice as much as a basket of Business Development Companies, while BDCS would move in line with a basket of Business Development Companies. For this hypothetical investor, his effective borrowing cost is the rate on the money market fund. Thus, his income from the $2,000 of his $10,000 in BDCS and $8,000 in the money market fund should exceed that of $1,000 of his $10,000 invested in BDCL and $9,000 in the money market fund, since his effective borrowing rate on the extra $1,000 invested in BDCS is less than what the imputed borrowing cost that BDCL uses. As I indicated in the article ” BDCL: The Third Leg Of The High-Yielding Leveraged ETN Stool, ” the 44 Business Development Companies that comprise the index upon which BDCL is based are a varied lot. Medallion Financial finances taxi cab companies. ACAS manages $20 billion worth of assets, including American Capital Agency Corp. (NASDAQ: AGNC ) and American Capital Mortgage Investment (NASDAQ: MTGE ), which are mREITs that are included in MORL. Each of the 44 Business Development Companies that comprise the index upon which BDCL is based have their own specific risk factors. The power of diversification can make a portfolio now comprised mainly of high-yielding interest rate-sensitive instruments more efficient when BDCL is added to that portfolio. As I explained in the article ” 30% Yielding MORL, MORT And The mREITs: A Real World Application And Test Of Modern Portfolio Theory ,” a security or a portfolio of securities is more efficient than another asset if it has a higher expected return than the other asset but no more risk, or has the same expected return but less risk. Portfolios of assets will generally be more efficient than individual assets. Compare investing all of your money in one security that had an expected return of 10% with some level of risk to a portfolio comprised of 20 securities each with an expected return of 10% with the same level of risk as the single security. The portfolio would provide the exact same expected return of 10%, but with less risk than the individual security. Thus, the portfolio is more efficient than any of the individual assets in the portfolio. My projection of $0.8216 for the BDCL January 2016 dividend would be an annual rate of $3.29 This would be a 19.9% simple yield, with BDCL priced at $16.5 and an annualized quarterly compounded yield of 21.5%. If someone thought that over the next five years market and credit conditions would remain relatively stable, and thus, BDCL would continue to yield 21.5% on a compounded basis, the return on a strategy of reinvesting all dividends would be enormous. An investment of $100,000 would be worth $264,290 in five years. More interestingly, for those investing for future income, the income from the initial $100,000 would increase from the $20,800 first-year annual rate to $56,822 annually. BDCL prices and dividends as of December 23, 2015 name ticker weight(%) price ex-date dividend freq contribution American Capital Ltd ACAS 11.51 14.19 Ares Capital Corp ARCC 9.97 14.63 12/11/2015 0.38 q 0.0857 Prospect Capital Corp PSEC 9.2 7.22 1/27/2016 0.08333 m 0.1055 Fs Investment Corp FSIC 8.61 9.21 12/18/2015 0.22275 q 0.0690 Main Street Capital Corp MAIN 5.5 30.2 2/18/2016 0.18 m 0.0491 Apollo Investment Corp AINV 4.86 5.41 12/17/2015 0.2 q 0.0595 Fifth Street Finance Corp FSC 3.58 6.29 2/10/2016 0.06 m 0.0339 Golub Capital BDC Inc GBDC 3.29 16.88 12/9/2015 0.32 q 0.0207 TPG Specialty Lending Inc TSLX 3.25 16.86 12/29/2015 0.39 q 0.0249 Hercules Technology Growth Capital Inc HTGC 3.24 12.38 11/12/2015 0.31 q 0.0269 BlackRock Kelso Capital Corp BKCC 2.67 9.53 12/22/2015 0.21 q 0.0195 TCP Capital Corp TCPC 2.66 14.34 12/15/2015 0.36 q 0.0221 Solar Capital Ltd SLRC 2.64 16.82 12/15/2015 0.4 q 0.0208 New Mountain Finance Corp NMFC 2.57 12.9 12/14/2015 0.34 q 0.0224 Goldman Sachs Bdc Closed End Fund GSBD 2.42 19.85 12/29/2015 0.45 q 0.0182 Triangle Capital Corp TCAP 2.35 19.52 12/7/2015 0.59 q 0.0235 Capital Southwest Corp CSWC 2.3 14.29 5/12/2015 s 0.0000 PennantPark Investment Corp PNNT 1.81 6.45 12/22/2015 0.28 q 0.0260 Medley Capital Corp MCC 1.73 7.84 11/23/2015 0.3 q 0.0219 THL Credit Inc TCRD 1.37 11.2 12/11/2015 0.34 q 0.0138 TICC Capital Corp TICC 1.36 6.1 12/14/2015 0.29 q 0.0214 PennantPark Floating Rate Capital Ltd PFLT 1.15 11.44 12/22/2015 0.095 m 0.0095 Fidus Investment Corp FDUS 0.89 14.38 12/2/2015 0.43 q 0.0088 Gladstone Investment Corp GAIN 0.89 7.9 12/16/2015 0.0625 m 0.0070 Fifth Street Senior Floating Rate Corp FSFR 0.87 8.52 2/3/2016 0.075 m 0.0076 Triplepoint Venture Growth BDC Corp TPVG 0.8 12.12 11/25/2015 0.36 q 0.0079 Garrison Capital Inc. GARS 0.78 12.66 12/9/2015 0.35 q 0.0071 Capitala Finance Corp CPTA 0.69 12.21 12/22/2015 0.2067 m 0.0116 Monroe Capital Corp MRCC 0.61 12.94 12/11/2015 0.35 q 0.0055 Newtek Business Services Corp NEWT 0.61 13.52 11/16/2015 3.19 q 0.0477 MVC Capital Inc MVC 0.58 7.58 12/29/2015 0.305 q 0.0077 Gladstone Capital Corp GLAD 0.55 7.3 12/16/2015 0.07 m 0.0052 KCAP Financial Inc KCAP 0.52 4.27 10/9/2015 0.21 q 0.0085 Solar Senior Capital Ltd SUNS 0.51 15.01 12/15/2015 0.1175 m 0.0040 Medallion Financial Corp TAXI 0.49 7.1 11/10/2015 0.25 q 0.0057 Horizon Technology Finance Corp HRZN 0.48 11.72 12/16/2015 0.115 m 0.0047 Stellus Capital Investment Corp SCM 0.47 10.14 12/29/2015 0.1133 m 0.0052 Alcentra Capital Corp ABDC 0.41 12.17 12/29/2015 0.34 q 0.0038 American Capital Senior Floating Closed Fund ACSF 0.4 9.96 1/20/2016 0.097 m 0.0039 CM Finance Inc CMFN 0.3 10.55 12/16/2015 0.3469 q 0.0033 WhiteHorse Finance Inc WHF 0.29 11.48 12/17/2015 0.355 q 0.0030 Oha Investment Corp OHAI 0.28 3.99 12/29/2015 0.12 q 0.0028 OFS Capital Corp OFS 0.28 10.87 12/15/2015 0.34 q 0.0029 Harris & Harris Group Inc TINY 0.27 2.21 0 0.0000

The iShares Select Dividend ETF: Not Your Traditional Dividend ETF

Summary Compared with other dividend ETFs DVY is quite unique. Its portfolio is a lot different than some would expect. It is higher yielding than both VYM and SCHD. In my last article I highlighted the PowerShares S&P 500 High Dividend Low Volatility ETF (NYSEARCA: SPHD ) which I believe is a very solid dividend ETF. Of course, I also highlighted that there are also plenty of other good dividend ETFs available to investors. One other dividend fund I personally like is the iShares Select Dividend ETF (NYSEARCA: DVY ). I believe that DVY is unique in the sense that it is a more like a traditional dividend ETF, however, is not your typical one. Having said that, I believe DVY is an excellent compliment to a more traditional dividend ETF. To really highlight DVY, and why I believe it is uniquely good, I thought it would be prudent to compare it to two other high quality dividend ETFs. The two that I chose are the Vanguard High Dividend Yield ETF (NYSEARCA: VYM ) and the Schwab U.S. Dividend Equity ETF (NYSEARCA: SCHD ). A couple of basics are laid out in the table below to get a quick glance at each of the funds before getting to their holdings. Fund Yield Expense Ratio Price/Earnings Beta DVY 3.32% 0.39% 17.01 0.52 SCHD 2.94% 0.07% 19.59 ~1.0 VYM 3.02% 0.10% 19.30 0.93 From the higher yield and lower P/E ratio we can see right away that DVY is different than these other two. What might stand out the most for some is DVY’s expense ratio, though. This higher expense ratio compared with the other two is an obvious downside. However, while the expense ratio seems very high compared to these two, it is actually is below the average of 0.44% for ETFs in general. A big plus for DVY would be the low beta. It is definitely a fund that experiences less volatility than some of the other dividend focused ETFs. Taking a quick look at the top 10 holdings it is easy to see how the basics above come together. Looking at the above list it doesn’t really seem like this is by any means your more traditional dividend ETF. AT&T (NYSE: T ) doesn’t even cut into the top 25 holdings. Johnson & Johnson (NYSE: JNJ ) isn’t even in the 100 name portfolio. To really exemplify what I’m getting at, below are the top 10 holdings for the other two funds. SCHD VYM Comparing the top 10 holdings is great and all, but the real comparison comes with looking at the overall holdings based on sector. This is where DVY looks immensely different than other dividend ETFs. Similar to SPHD, DVY is heavily weighted toward utilities. The difference would be that DVY is not weighted with REITs at all. It is fairly obvious why there is such a great weight dedicated to utilities seeing as they are some of the best dividend payers in the market. Having regulated and reoccurring businesses offers for the most part consistent safety for dividends. In comparison take a look at the sector weights for the other two. (SCHD left, VYM right) As can be seen, both have very few utilities in their portfolios. This is what I believe makes DVY such a good compliment to either of these solid funds. Since both SCHD and VYM are lacking in exposure to utilities, one could easily make up with this by adding DVY. DVY is clearly a lot different than traditional dividend focused ETFs in the sense that one is getting such large exposure to utilities. For those seeking income this is a good thing considering utilities are such solid dividend payers. Same as my previous article I will give a fair warning to investors as to where the funds value is. With a rate hike looming on the horizon it may be prudent to wait on the purchase of DVY. Since utilities is one of the larger sectors most affected by a rate hike, it may be prudent to wait and see if there is any further downside post-hike. In conclusion, DVY is very unique dividend ETF. Since it gives a much different exposure to investors I see it as an excellent compliment to those who own other traditional dividend ETFs. Overall, the fund is a solid pick for any dividend investor seeking attractive distributions and relatively low volatility.