High Dividend ETFs and Their Underlying Indexes – DVY, QDF, DGRW, DLN, DTN and SPYD

Pure dividend funds have a long history and rich series of products compared to high dividend and low volatilities funds. DVY, QDF, DGRW, DLN, DTN, and SPYD, are of this type with AuM of $17.2 billion, 1.3 billion, $1.7billion, $1.92 billion, $884 million and $156 million respectively.

The iShares Dow Jones Select Dividend ETF (DVY) was launched in November 2003, the first ETF aiming to capture dividend yield to meet investors’ needs. It was built on top of Dow Jones U.S. Select Dividend Index.

The universe starts from the S&P BMI country indices, and the companies must pass the following screens for dividend quality:

  • The company must have paid dividends in each of the previous three years.
  • The company’s previous year dividend-per-share ratio must be greater than or equal to its three-year

Average annual dividend-per-share ratio.

  • A five-year average dividend coverage ratio must be greater than or equal to 2/3rds the five-year average dividend coverage ratio of the corresponding S&P BMI country index, or greater than 118%, whichever is greater.
  • A non-negative trailing 12-month earnings-per-share (EPS).
  • A float-adjusted market capitalization of at least US$ 600 million (US$ 400 million for current constituents).
  • An average daily trading volume of at least US$ 3 million over the past three months.

Finally, the top 30 stocks by indicated dividend yield are selected to the index, subject to buffers designed to limit turnover by favoring current index constituents. (Referencing the Dow Jones U.S. Select Dividend Index Methodology)

The FlexShares Quality Dividend Fund, QDF, tracks Northern Trust Quality Dividend Index, It aims to not only look for firms that are paying the greatest dividends, but also attempts to find the firms whose dividends are durable and unlikely to be cut in the future. The index provider created a proprietary multi-factor scoring model that determines a “quality factor” for each firm. The resulting portfolio is slightly tilted to the defensive sector and mid-market caps.

DGRW, DLN, and DTN all belong to WisdomTree, tracking WisdomTree U.S. Quality Dividend Growth Index, WisdomTree Large Cap Dividend Index, and WisdomTree Dividend ex-Financials Index respectively.

WisdomTree U.S. Quality Dividend Growth Index is unique in its focuses on dividend growth potential rather than backward-looking dividend increases employed by most such type of index creators.

To achieve this goal, it mixes the forward-looking earnings estimates with historical ROA and ROE growth in its selection process. The resulting portfolio skews toward larger firms with a lower beta, and toward consumer and industrial stocks. DGRW trades well, providing good liquidity to both retail investors and institutional investors.

DLN only includes companies that regularly pay“DLN selects large-caps” tilting toward high dividend yield.” The methodology states that to form this index, a company’s cash dividends with the total amount of dividends paid by all the companies within the select universe are compared and ranked based on their proportions.

DLN predominantly holds large-cap stocks, but with a significantly higher dividend yield than the benchmark. Hence, the tradability, liquidity of this fund is quite decent.

DTN is distinctive in that it excludes financials altogether, a sector that represents roughly a sixth of the overall large-cap benchmark. The fund picks the ten firms in each of the nine remaining economic sectors with the highest indicated annual dividend yield. The resulting portfolio is significantly overweighting utilities and materials, and the dividend weighting scheme drives down the fund’s tech exposure and average market cap.

The SPDR S&P 500 High Dividend ETF, SPYD, launched in October 2015, tracks an index of the 80 highest-yielding stocks selected from the S&P 500. Stocks are equally weighted. The fund ranks all dividend payers in the S&P 500 by indicated yield (most recent dividend times dividend frequency over share price) and culls the top 80. SPYD charges a low fee 0.12%, its liquidity is 0.15% spread on average, so it’s decent fund for investors.

Juxtaposing DVY, QDF, DGRW, SPYD, and S&P500 together and we can see they all display market characteristic, and price-wise, not able to beat the market, but nevertheless, the purpose of these funds is to generate stable and regular dividends, which they suffice.



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