C - RDIV: Attractive Valuation And Sub-Par Quality
2023-05-30 03:23:03 ET
Summary
- Invesco S&P Ultra Dividend Revenue ETF holds 60 dividend stocks weighted on revenues.
- It is overweight in financials.
- Valuation is attractive, but quality, return and volatility are underwhelming.
This article series aims at evaluating exchange-traded funds (ETF) regarding the relative past performance of their strategies and metrics of their current portfolios. As holdings change over time, updated reviews are posted from time to time.
RDIV strategy and portfolio
Invesco S&P Ultra Dividend Revenue ETF ( RDIV ) started investing operations on 09/30/2013 and it is tracking the S&P 900 Dividend Revenue-Weighted Index. It has 61 holdings, a distribution yield of 4.22% and a total expense ratios of 0.39%.
As described by Invesco , eligible stocks must be in the S&P 900 Index excluding the top 5% by dividend yield and the top 5% by payout ratio in each sector. Then, the top 60 stocks by dividend yield are weighted according to revenues, and capped at 5%. The portfolio is reconstituted and rebalanced quarterly .
RDIV is almost exclusively invested in U.S. companies (97.9% of asset value), with about 42% in large companies, 44% in mid-caps and 14% in small caps. Financials are the heaviest sector by far (29.1%). It is followed by consumer staples (13.5%), materials (10.2%) and consumer discretionary (10.1%). Other sectors are below 8%. Compared to the S&P 500 index ( SPY ), RDIV massively overweights the top 3 sectors and, to a lesser extent, real estate and utilities. It underweights mostly technology, communication, healthcare and industrials.
Sector breakdown (chart: author - data: Invesco and SSGA)
The fund is quite concentrated: the top 10 holdings, listed below with fundamental ratios, represent 49.8% of assets.
| Ticker |
| Name |
| Weight% |
| EPS growth %TTM |
| P/E TTM |
| P/E fwd |
| Yield% |
| Best Buy Co. |
| 5.59 |
| -34.36 |
| 12.56 |
| 12.25 |
| 4.95 |
| Intel Corp. |
| 5.24 |
| -111.45 |
| N/A |
| 70.26 |
| 1.72 |
| Phillips 66 |
| 5.19 |
| 350.79 |
| 3.67 |
| 6.71 |
| 4.43 |
| Prudential Financial |
| 5.12 |
| -99.30 |
| 931.86 |
| 6.62 |
| 6.24 |
| LyondellBasell Industries NV |
| 5.10 |
| -47.45 |
| 9.46 |
| 8.95 |
| 5.73 |
| 3M Co. |
| 5.08 |
| 0.48 |
| 10.05 |
| 11.24 |
| 6.19 |
| Citigroup |
| 4.98 |
| -15.52 |
| 6.22 |
| 7.20 |
| 4.57 |
| Philip Morris International |
| 4.72 |
| -3.12 |
| 16.23 |
| 14.52 |
| 5.59 |
| Walgreens Boots Alliance |
| 4.66 |
| -150.22 |
| N/A |
| 6.67 |
| 6.40 |
| The Kraft Heinz Co. |
| 4.17 |
| 98.37 |
| 19.52 |
| 13.26 |
| 4.17 |
Performance
Since inception in 2013, RDIV has lagged SPY by 2.5% in annualized return, with a higher risk in drawdown and standard deviation of monthly returns ("volatility" in the table below). It has also lagged one of its most famous competitors: the Schwab U.S. Dividend Equity ETF ( SCHD ).
| Total Return |
| Annual Return |
| Drawdown |
| Sharpe ratio |
| Volatility |
| RDIV |
| 120.53% |
| 8.55% |
| -49.97% |
| 0.49 |
| 19.70% |
| SPY |
| 198.82% |
| 12.03% |
| -33.72% |
| 0.73 |
| 15.09% |
| SCHD |
| 183.20% |
| 11.40% |
| -33.37% |
| 0.74 |
| 14.51% |
Data calculated with Portfolio123
In the last 12 months, RDIV has lagged not only SCHD, but also some of the largest and most traded dividend ETFs: SPDR S&P Dividend ETF ( SDY ), iShares Select Dividend ETF ( DVY ) and First Trust Value Line Dividend Index Fund ( FVD ).
RDIV vs competitors, last 12 months (Seeking Alpha)
Comparing RDIV with a reference strategy based on dividend and quality
In previous articles, I have shown how three factors may help cut the risk in a dividend portfolio: Return on Assets , Piotroski F-score , and Altman Z-score .
The next table compares RDIV since inception with a subset of the S&P 500: stocks with an above-average dividend yield, an above-average ROA, a good Altman Z-score, a good Piotroski F-score and a payout ratio below 100%. It is rebalanced annually to make it comparable with a passive index.
| Total Return |
| Annual Return |
| Drawdown |
| Sharpe ratio |
| Volatility |
| RDIV |
| 120.53% |
| 8.55% |
| -49.97% |
| 0.49 |
| 19.70% |
| Dividend quality subset |
| 200.02% |
| 12.07% |
| -36.22% |
| 0.75 |
| 15.34% |
Past performance is not a guarantee of future returns. Data Source: Portfolio123
RDIV lags the dividend quality subset. However, ETF performance is real, whereas the subset is simulated. My core portfolio holds 14 stocks selected in this subset (more info at the end of this post).
RDIV Value and Quality
RDIV is much cheaper than the S&P 500 regarding the usual ratios, as reported in the next table.
| RDIV |
| SPY |
| P/E TTM |
| 10.03 |
| 21.21 |
| Price/Book |
| 1.15 |
| 3.77 |
| Price/Sales |
| 0.64 |
| 2.4 |
| Price/Cash Flow |
| 9.18 |
| 15.29 |
Data: Fidelity
The fund holds 60 stocks, of which 10 are risky stock regarding my metrics. In my ETF reviews, risky stocks are companies with at least 2 red flags among: bad Piotroski score, negative ROA, unsustainable payout ratio, bad or dubious Altman Z-score, excluding financials and real estate where these metrics are unreliable. Here, risky stocks weigh about 24% of asset value: this is a bad point, especially since the heaviest sector is not taken into account.
According to my calculation of aggregate metrics reported in the next table, portfolio quality is sub-par.
| RDIV |
| SPY |
| Altman Z-score |
| 1.76 |
| 3.41 |
| Piotroski F-score |
| 4.65 |
| 5.63 |
| ROA% TTM |
| 3.95 |
| 7.45 |
Takeaway
Invesco S&P Ultra Dividend Revenue ETF holds 60 dividend stocks weighted based on revenues. It is overweight in financials (30% of assets). Its valuation looks attractive, but the aggregate quality metrics do not. The fund has underperformed the S&P 500 since inception, and it has been lagging several competitors in the last 12 months. Moreover, risk measured in drawdown and historical volatility is quite high.
For further details see:
RDIV: Attractive Valuation And Sub-Par Quality