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.
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%.
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.