Friday, August 1, 2008

Dow Jones Select Dividend Index Fund ETF (DVY) Analysis

It is important to understand what drives the value of any investment that you make. For individual stocks, we do fundamental and technical analysis. For mutual funds we look at management, track record, historical returns, and methodology. For ETFs it is important to understand the composition of the ETF and how the investments in the ETF are chosen. Today I am going to look under the hood of the iShares Dow Jones Select Dividend ETF (DVY).

The DVY is an ETF focused on U.S. based dividend paying stocks. The ETF tracks the Dow Jones U.S. Select Dividend Index. For ETFs it is important to understand the index that the ETF tracks so that is where I look next.

The Dow Jones U.S. Select Dividend index is reviewed and updated annually. To be considered for the index a stock must meet the following requirements:

-Must be part of the Dow Jones U.S. Total Market Index.
-Must have maintained or increased the dividend per share for each of the past five years.
-Must have a five year average payout ratio of less then 60%.
-Must have an average volume of at least 200,000 shares per day over the past three months.
-REITs are excluded.

The top 100 stocks meeting these requirements are included in the index. The index is weighed based on the indicated annual dividend yield with no stock comprising more then 10% of the index.
DVY has an expense ratio of .40%.
The Yield was 5.14% as of 6/30/2008.
Daily average volume for the ETF is 909,000 shares.

Here are the sector allocations and the top ten holdings for DVY.

Also I wanted to highlight the top yielding equities that are held in the ETF. I also wanted to break out the highest yielding non-financial holdings for everyone. These lists as well as the rest of the holdings could be used to find interesting stock ideas for individual stock investment. Please do your own research before investing in any of these stocks as extreamly high yields may be indications of troubled companies.

Hopefully you found this post interesting and informative. I plan to highlight other dividend or value ETFs in the future. Please let me know if there is any particular ETF that you are interested in or if there is any other information you would like included in the analysis. Have a great weekend.