New Dividend ETF Launched (HDV)

For those investors on the lookout for income, here’s another income ETF in the pipeline as the WSJ (subscription required) reports:

BlackRock (BLK) is set to launch Thursday another dividend-focused fund. The iShares High Dividend Equity Fund (HDV) follows the family’s first and most popular similar themed ETF, the $6 billion iShares Dow Jones Select Dividend Index Fund (DVY).

It came out in 2003 and was followed by the Dow Jones International Select Dividend Index Fund (IDV).

The new ETF will separate itself by following a special index created by Morningstar. Like DVY, its benchmark will screen for companies with consistent dividend histories.

But HDV will add a few other wrinkles.

It will incorporate Morningstar’s so-called ‘economic moat’ criteria in the weeding out process. That’s where companies are judged by how much of a competitive advantage they hold. Factors like economies of scale and the amount of intangible assets such as brands or patents held are taken into account.

Default measures are also part of the pre-selection process used by the Morningstar benchmarks.

The established DVY includes the 100 stocks from the broad Dow Jones U.S. Index with the highest dividend yields. It leaves out firms that’ve cut dividends in the past five years or have paid more than 60% of earnings through dividends.

The new ETF’s benchmark had a 19.8% weighting to consumer goods, 19.1% to health care and 17.1% to utilities heading into March, according to BlackRock.

By contrast, DVY has 32% in utilities, 19.7% in consumer goods and 15% in industrials. Health care comes in at around 3.6% of the ETF’s total assets.

With a higher allocation to utilities, it would appear that the primary goal of HDV is to generate an improved dividend. Since income investors have been starved for returns, this could be a welcome addition.

As always, I need to see some price data for a few months to better evaluate the trend and its dividend paying history before including it in our weekly StatSheet.

Disclosure: Holdings in DVY

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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