They represent an attractive way for income investors to augment and further diversify their portfolios away from a strict high yield focus.
One of the easiest ways to own this group is through a low-cost and liquid exchange-traded fund. If you’ve been around the ETF space for a while, you have probably heard of the Vanguard Dividend Appreciation ETF (VIG) or the ProShares S&P 500 Dividend Aristocrats ETF (NOBL). Both funds own a basket of stocks with dividend growth characteristics and have proven to be sound investment vehicles in their own ways.
Yet, as the ETF world continually broadens and innovates, there have been interesting advancements in this segment than some investors may not have taken notice of yet. Below are three funds that continue to push the bar in terms of their portfolio exposure, cost, and overall value proposition for investors.
Vanguard International Dividend Appreciation ETF (VIGI)
If you love VIG, then it’s time to get to know its international cousin in VIGI. This low-cost index fund is one of the newer Vanguard ETFs with about 18 months of track record under its belt. Over that time frame, VIGI has managed to accumulate $425 million in total assets as the tailwind of a falling U.S. dollar and attractive valuation comparisons bolster the case for international stocks. The reasonable 0.25% expense ratio doesn’t hurt either.
VIGI owns 245 foreign stocks with a history of dividend increases. The international exposure includes both developed and emerging market components to support a wide swath of large and mid-sized companies outside of the United States.
A fund like VIGI could potentially be used as a core or tactical international holding to augment traditional domestic equity holdings.
For those investors who prefer currency-hedged international stock exposure, take a look at the WisdomTree International Hedged Quality Dividend Growth Fund (IHDG) as an alternative.
First Trust Rising Dividend Achievers ETF (RDVY)
RDVY takes the notion of dividend growth to the next level by incorporating additional fundamental security selection criteria in its index makeup. This “smart beta” ETF starts with the NASDAQ U.S. Benchmark of the largest 1,000 domestic stocks. It then narrows down the field by screening for trailing 3 and 5-year dividend growth, positive earnings per share, low debt ratios, and attractive payout ratios.
The result is a portfolio of 50 large-cap stocks that are equal weighted and rebalanced quarterly. The ETF is also reconstituted on an annual basis to ensure the underlying holdings are adhering to its fundamental criteria. At present, this includes well-known companies such as Apple Inc (AAPL), JP Morgan Chase (JPM), and The Boeing Company (BA).
As is the case with many First Trust ETFs, the expense ratio is a little on the higher side at 0.50%. However, this is generally the industry norm with a more complex index methodology.
It’s worth noting that RDVY has posted stronger net returns than both VIG and NOBL over the last 3-years despite the higher embedded costs. Because of its more concentrated portfolio, it may be best served as a tactical position to augment more diversified core exposure.
Reality Shares DIVCON Leaders Dividend ETF (LEAD)
Reality Shares is an independent exchange-traded fund sponsor that is doing some interesting things in the dividend growth space. One of their flagship products is LEAD, which uses a rules-based methodology to seek out large-cap stocks with a high probability of increasing their dividends in the next 12-months.
The fund company uses a scoring system known as DIVCON to systematically rank dividend increases and stock fundamentals to seek out these income growers. The LEAD portfolio is constituted of 50 stocks with an average dividend growth rate of 17.8%, according to recent fact sheet metrics.
Top holdings in this fund are often much different than traditional dividend growth ETFs that screen based a single historical data point. For example, NVIDIA Corp (NVDA), Southwest Airlines (LUV), and Visa Inc (V) are all ranked in the top five of the LEAD portfolio.
LEAD charges an expense ratio of 0.43% and has $14 million in total assets since debuting in early 2016. This fund is certainly one with some potential as a more dynamic approach that can be used with strategic opportunity in mind.
The Vanguard International Dividend Appreciation ETF (NASDAQ:VIGI) closed at $62.20 on Friday, down $-0.14 (-0.22%). Year-to-date, VIGI has gained 19.32%, versus a 10.22% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of FMD Capital.