VIG - RDVY: A Core Dividend Holding Contender

2024-01-03 12:15:53 ET

Summary

• First Trust Rising Dividend Achievers ETF is a good option for investors looking to tap into companies with a record of consistently increasing dividends.
• The RDVY ETF tracks the NASDAQ US Rising Dividend Achievers Index and invests at least 90% of its assets in companies from this index.
• The fund's portfolio consists of 50 companies with a history of increasing dividends, offering diversification and strong performance.

I've argued that 2024 will see a return to dividend-style investing given the Fed pivoting on rates, and think there are a number of good funds to play this. For this reason, the First Trust Rising Dividend Achievers ETF (RDVY) is worth a look for any investor seeking to tap into the potential of companies with a record of consistently increasing their dividend payouts. This fund has a unique approach to stock selection and portfolio management that sets it apart in the crowded field of dividend-focused exchange-traded funds, or ETFs.

RDVY is designed to track the NASDAQ US Rising Dividend Achievers Index. This index aims to offer exposure to a diversified portfolio of U.S. companies with a history of raising their dividends. The fund typically invests at least 90% of its assets in companies that are part of this index.

RDVY was launched in January 2014 and is managed by First Trust Advisors. It is traded on the NASDAQ exchange and has an expense ratio of 0.50%.

RDVY ETF Holdings

The fund's portfolio consists of 50 companies that have demonstrated a consistent ability to increase their dividends. The selection process is rigorous, requiring companies to have increased their dividend payouts for three consecutive years and to have positive earnings per share growth over the same period.

The top holdings in the RDVY portfolio as of the most recent reporting period are Pfizer Inc., CF Industries Holdings, Inc., Discover Financial Services, American Express Company, and JPMorgan Chase & Co.

• Pfizer Inc. stands out as a prominent international biopharmaceutical entity, boasting a wide array of prescription drugs, vaccines, and products for consumer health care.
• CF Industries Holdings, Inc. positions itself as a top-tier worldwide producer and supplier of nitrogen-based fertilizer products.
• Discover Financial Services operates as a comprehensive direct banking and payment services firm, offering an array of financial offerings including credit cards, student and personal loans, as well as home equity loans.
• American Express Company operates on a global scale as an integrated payments corporation, delivering to its customers a variety of products, insights, and experiences that enhance life quality and contribute to business growth.
• JPMorgan Chase & Co. is recognized as a preeminent international financial services institution, with expansive operations spanning over 60 countries.

No holding makes up more than 2.2% of the portfolio, which I personally like as a well-diversified mix in a world full of top-heavy market cap weight averages.

Sector Composition

The sector composition of the RDVY portfolio is diverse, which aids in risk management and ensures broad exposure to different segments of the U.S. economy. The fund has a significant exposure to the Financials sector, followed by Industrials, Basic Materials, Energy, and Technology sectors.

The fund's sector weighting strategy is dynamic and can shift based on the underlying fundamentals of the companies in the index and their ability to sustain dividend growth.

Peer Comparison

When compared to other similar ETFs like the Vanguard Dividend Appreciation ETF ( VIG ) and the iShares Select Dividend ETF ( DVY ), RDVY holds its own in terms of performance and dividend yield, meaningfully outperforming both.

While VIG focuses on companies that have a record of increasing dividends over time, DVY focuses on companies with a high dividend yield. RDVY, on the other hand, combines these two strategies by investing in companies with a history of increasing dividends and a high dividend yield.

Pros and Cons

Investing in RDVY comes with its distinct advantages and potential drawbacks.

Pros

1. Dividend Growth : RDVY focuses on companies with a history of increasing dividends, which can provide a growing income stream for investors.

2. Diversification : The fund's portfolio consists of 50 companies spread across various sectors, reducing the risk associated with investing in a single sector or company.

3. Performance : RDVY has demonstrated strong performance since its inception, outperforming many of its peers in terms of total return.

Cons

1. Sector Concentration : The fund has significant exposure to the Financials sector (40%0, which can expose investors to sector-specific risks.

2. Expense Ratio : The fund's expense ratio of 0.50% is higher than many of its peers, which can eat into returns over time.

Conclusion

Investing in the First Trust Rising Dividend Achievers ETF can be a strategic move for investors seeking a combination of income and growth. With its focus on companies with a history of increasing dividends and a diversified portfolio across various sectors, this fund looks compelling as a core dividend play.

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