Why should someone buy dividend stocks?
Dividend stock ETFs offer you the opportunity to own consistently profitable companies that are expected to deliver steady dividend income. There is no guarantee that any sector or type of fund will outperform S&P 500 Avoid index or loss risk. But dividend stocks are generally considered “quieter” and less volatile than tech stocks.
If you want to invest dividend etfTwo popular funds are worth considering. Fidelity High Dividend ETF (FDVV 1.15%) and this iShares Core High Dividend ETF (HDV 0.04%) Provide a competitive dividend yield. Fidelity funds have outperformed iShares funds in recent years, but iShares funds may be a better buy for the future. Here are some reasons.
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FDVV: A Dividend ETF That’s 26.7% Technical
The Fidelity High Dividend ETF holds 110 stocks (plus two short positions), has a trailing 12-month dividend yield of 2.79%, and carries an expense ratio of 0.15%. The fund has delivered an average annual return (by net asset value) of 18.8% over the last three years, and 13.3% over the last nearly 10 years since its inception in September 2016. since, This fund has performed strongly iShares Core High Dividend ETF:
FDVV total return level by data YCharts
But despite this strong performance, the Fidelity High Dividend ETF has an interesting portfolio selection that should dividend stock Investors think twice. If you want to diversify your portfolio from the major tech names that top the S&P 500 index, this fund doesn’t fit the bill. The bulk of its portfolio is technology stockSome of which do not even pay significant dividends.
The fund’s top sector is information technology (26.7% of the fund), and its top four stock holdings are familiar names: NVIDIA, Apple, MicrosoftAnd broadcom. These four tech stocks make up more than 20% of the fund’s holdings.
Fidelity Covington Trust – Fidelity High Dividend ETF
today’s change
(-1.15%) $-0.69
current price
$59.26
key data points
day limit
$59.24 -$59.69
52wk range
$49.10 -$60.12
volume
703K
Although most of these stocks have delivered strong share price appreciation in recent years, they are not known for paying generous dividends. Microsoft’s forward dividend yield is 0.90%, Broadcom’s is 0.62%, Apple’s is 0.36%, and Nvidia’s is only 0.02%. Such low-dividend stocks seem an odd choice for inclusion in a “high dividend” ETF.
HDV: 15 years of 10.7% annual returns
The iShares Core High Dividend ETF offers a portfolio that seems better suited for dividend investors. Its largest sectors are consumer electronics (24.6% of the fund), energy (21.4%), healthcare (16.5%) and financials (10.9%), with information technology accounting for only 8.2% of the fund’s holdings.
This ETF consists of 75 dividend-paying US stocks with a trailing 12-month dividend yield of 2.88% and carries an expense ratio of 0.08%. Its top five stock holdings are:
- ExxonMobil (8.34% of the fund)
- beam (6.3%)
- johnson and johnson (5.6%)
- AbbVie (5.4%)
- philip morris (4.8%)
Instead of 20% of the fund tied to just four tech stocks, the iShares Core High Dividend ETF has a broader sector mix, including energy And healthcare. These companies are less likely to be affected by a potential tech recession or the bursting of the AI bubble.
iShares Trust – iShares Core High Dividend ETF
today’s change
(-0.04%) $-0.01
current price
$27.30
key data points
day limit
$27.25 -$27.45
52wk range
$22.82 -$28.18
volume
2.3m
Over the last 15 years since the fund’s inception in March 2011, it has delivered an average annual return of 10.7%. This is a solid long-term return on investment, especially if the fund can avoid the larger drawdowns of a more volatile tech-heavy portfolio.
Why buy HDV instead of FDV?
I own none of these dividend etf. Both funds have underperformed the S&P 500 index since 2016:
hdv total return level by data YCharts
But if I had to buy one, I would choose the iShares Core High Dividend ETF. That’s because it better suits the strategic objectives of dividend stocks: trying to manage risk, avoid volatility, and reach different parts of the market away from the AI boom.
The Fidelity High Dividend ETF seems very risky to me. Although FDVV has outperformed in recent years, its tech-heavy portfolio could disappoint dividend-seeking investors if the tech sector goes into recession.
The holdings in the iShares Core High Dividend ETF are consistent with the sectors and companies I want to buy for stable dividend income. It also has a lower expense ratio than Fidelity funds. These are some of the reasons why iShares Core High Dividend ETF is on top best dividend etfs.