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A Sectoral Holding Analysis of DVY

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Nov. 19 2015, Updated 10:07 a.m. ET

DVY’s stock selection methodology

According to the iShares Select Dividend ETF’s (DVY) prospectus, in order to be included in the underlying Index, each security must meet the following criteria:

  • It must have a non-negative historical five-year dividend-per-share growth rate.
  • It must have a five-year average dividend coverage ratio greater than or equal to 167%.
  • It must have a three-month average daily trading volume of 200,000 shares.
  • It must have paid dividends in each of the previous five years.
  • It must have a non-negative trailing 12-month earnings per share.

As you can see, the stock selection methodology focuses on both dividend-yielding capacity and the fundamental position of the fund.

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Portfolio breakdown

A major component of DVY includes utilities, financials, and consumer discretionary. DVY currently manages a total portfolio of $13.4 billion distributed over 99 holdings. The ETF has a net expense ratio of 0.39%.

The top holdings of DVY include high-dividend-yielding stocks such as NextEra Energy (NEE), Philip Morris International (PM), Lockheed Martin (LMT), and CME Group (CME).

Moving averages and earnings

The utility sector, the highest weighted sector constituting about 27% of DVY, is trading below its 20-day, 50-day, and 100-day moving averages. It’s mainly due to the weak earnings of utilities that beat analysts’ estimates by only 1.6% and the poor economic environment.

The financial sector, another major component of DVY, is trading below its 20-day average but above its 50-day and 100-day moving averages. This relates to the sector’s poor performance in 3Q15.

Weak returns from these two top sectors, which represent 51% of DVY’s portfolio, have resulted in the fund’s poor performance in the market.

In the next part of the series, we’ll look at DVY’s returns in combination with its portfolio.

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