What Does a High Dividend ETF Own?

Following the Fed’s aggressive rate cut in mid-September, we believe many advisors are rethinking how they are providing stable income for client portfolios. High-dividend-yielding equity investments are likely to get closer looks in the fourth quarter after strong recent performance.

Advisors can certainly buy individual dividend-paying stocks. However there is always a risk of a company’s dividend being cut or the stock declining for other reasons. We think dividend ETFs offer the benefits of owning several dozen stocks to spread around the income stream and reduce the risks.

There are two main types of these ETFs - those primarily focused on growth and those primarily focused on yield. Current income tends to be higher and volatility tends to be lower for the latter group as the yield is part of the construction process. However there are differences between what you will find inside ETFs with a high dividend focus. Let’s look at a few ETF examples.

iShares Drills Into Energy

The iShares Core High Dividend ETF (HDV) recently had 26% of its assets in energy stocks, with above-average stakes in health care (19%) and consumer staples (19%) too. The fund’s top-10 holdings include AbbVie, Chevron, Coca-Cola, Exxon Mobil, Merck, and Philip Morris International. Among the larger sectors in the broader market, financials (4.4%) and industrials (2.5%) exposure are relatively small. HDV owns no real estate investments.

Year-to-date through September 20, HDV was up 17.6%.