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.

Bank ETFs

There was another run up in financial stocks today even as more financial stocks missed earnings estimates. Wachovia Bank (WB) missed earnings by a wide margin, and said it was going to cut its dividend again. The market responded by driving WB up by more then 25% and with large gains in other financial stocks. I thought that I would take a look at some financial sector ETFs to review options to play a rebound in the financial sector through ETFs. Here are some of the options that I found.

Data from Morningstar and Yahoo Finance

There are a couple of ETFs that I would like to highlight. First VFH, this looks interesting because it has the lowest expense ratio as well as the largest number of holdings. I think that it is important to look for an ETF with many holdings because there are probably still some financial stocks with problems out there and some that may still go under. If you have an ETF with a large number of holdings then if a small number of financial stocks run into problems it will not have an out-sized affect on the portfolio and you will still be able to capitalize on the rebound in financial stocks if and when it happens. Second KBE, this concentrated portfolio looks interesting if you are not worried about potential financial landmines that may still be out there. KBE has the highest dividend yield at 6.2% as well as the largest losses for both YTD and 1Yr returns. This could give it the potential for the largest rebound and it pays you to stick around while you are waiting for that rebound.

Please remember financial stocks have been very volatile and that investing in any of these ETFs is a risky strategy. Also remember that you probably have exposure to the financial sector if you hold mutual funds or other ETFs that invest in the broad market so you could be significantly overweight in your portfolio if you invest in any of these ETFs. That said the market looks like it was expecting all the financial stocks to go under and since they look like they will not many of the financial stocks are rebounding. There has already been a large run up but after the punishment financials took on the way down there could still be a lot more upside. There could also be downside if it turns out that recent market action was a short term rally and the market decides that it was undeserved many financial stocks could plummet.

Dividend ETFs

This morning I was looking over some of the available ETFs that focus on dividend paying stocks. Given the dramatic drop and continued uncertainty in financial stocks, I thought it would be interesting to review each ETFs exposure to the financial sector. I also reviewed Yield, Expense Ratio, and Average Volume.

Information presented here is from Morningstar

It seems like there would be a couple of ways to play dividend ETFs in the current market. If you are risk adverse or believe that there is more trouble ahead for financial stocks the WisdomTree LargeCap Dividend Fund (DLN) and the Vanguard High Dividend Yield ETF (VYM) look interesting as they hold less then 30% financial shares and have yields around 3.5%. If on the other hand you feel that financial stocks have been oversold and expect a rebound then the Powershares High Yield Equity Dividend Achievers Portfolio (PEY) and the WisdomTree High-Yielding Equity Fund (DHS) look interesting due to their greater then 50% exposure to financial stocks and yields of 7.41% and 5.89% respectively. These ETF seem to have reasonable expense ratios and decent average volume. I hope to review some some of these ETFs in greater detail soon. Let me know if there are other Dividend ETFs out there that look interesting or if there are any of these ETFs you would like me to review in greater detail. Have a great day.