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A Structural Overview of DVY, a High-Dividend-Yielding Fund

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Nov. 18 2015, Published 2:02 p.m. ET

DVY, a high-dividend-yielding fund

The iShares Select Dividend Fund (DVY) is a smart beta fund that aims to generate regular income for its investors. It seeks to replicate the performance results of the Dow Jones U.S. Select Dividend Index. The index provider selects stocks on the basis of the dividend history for each stock.

According to the prospectus of the fund, a stock that has paid dividends in each of its last five years is eligible to be part of the index. The ETF is more focused on a company’s dividend history than on its capital appreciation.

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The dividend-yielding smart beta group

The above graph compares the market performance of DVY with other attractive dividend-yielding ETFs, including the First Trust Value Line Dividend ETF (FVD) and the FlexShares Quality Dividend ETF (QDF). FVD’s portfolio consists of stocks that have the capability to generate high dividends and have the potential for capital appreciation.

QDF uses a combination of high-quality and dividend-paying stocks to generate profit in the market. As you can see in the above graph, DVY has seen more volatility in its market performance in 2015 compared to FVD and QDY. Its has also underperformed compared to FVD and QDF. In the other parts of this series, we’ll look at DVY’s weak performance and the reasons for it.

Selection model

The top holdings of DVY include good dividend-yielding stocks such as Philip Morris International (PM), Kimberly-Clark (KMB), Chevron (CVX), NextEra Energy (NEE), and Occidental Petroleum (OXY). The index provider calculates the dividend yield using a stock’s unadjusted indicated annual dividend (not including any special dividends) divided by its unadjusted price for identifying their weights in DVY’s portfolio.

In the next part of the series, we’ll analyze DVY’s market performance and volatility for the current year.

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