Should iShares Select Dividend ETF Be on Your Investing Radar?
Designed to provide broad exposure to the Large Cap Value segment of the US equity market, the iShares Select Dividend ETF is a passively managed exchange traded fund. It was launched on November 3, 2003.
BlackRock sponsors this fund, and it has gathered assets worth over $17.87 billion, making it one of the largest ETFs in the Large Cap Value segment of the US equity market.
Why Large Cap Value?
Large Cap companies usually have a market capitalization above $10 billion. They are generally a stable option, with less risk and more reliable cash flows than mid and small cap companies.
Value stocks are known for their lower-than-average price-to-earnings and price-to-book ratios. While they have lower sales and earnings growth rates, value stocks have outperformed growth stocks in nearly all markets over the long term. However, in strong bull markets, growth stocks are more likely to be winners.
Costs
When investing, it's crucial to pay attention to an ETF's expense ratio. Lower cost products tend to produce better results assuming all other factors are equal. The annual operating expenses for this ETF are 0.38%, which is on par with most of its peers.
It has a 12-month trailing dividend yield of 3.84%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure, it's still essential to understand a fund's holdings before investing. Most ETFs are transparent and disclose their holdings daily.
This ETF has the heaviest allocation in the Utilities sector—about 28.50% of the portfolio. Financials and Consumer Staples sectors follow.
Looking at individual holdings, Altria Group Inc accounts for about 2.94% of total assets, followed by AT&T Inc and Verizon Communications Inc. The top 10 holdings make up about 18.21% of the fund's total assets under management.
Performance and Risk
The ETF aims to match the performance of the Dow Jones U.S. Select Dividend Index before fees and expenses. This index measures the performance of companies that provide relatively high and consistent dividend yields.
The ETF has added roughly 3.56% so far this year and has risen about 8.57% in the last year (as of June 18, 2024). The ETF's price has ranged between $102.97 and $125.75 in the past 52 weeks.
With a beta of 0.88 and a standard deviation of 15.82% over the trailing three-year period, this ETF is considered a medium risk investment. It holds about 107 companies, effectively diversifying company-specific risk.
Alternatives
The iShares Select Dividend ETF holds a Zacks ETF Rank of 3 (Hold). This is based on factors like expected asset class return, expense ratio, and momentum. For those seeking exposure to the Large Cap Value area of the market, this ETF is a reasonable option. However, investors might also want to consider other ETFs in this space.
iShares Russell 1000 Value ETF and Vanguard Value ETF track similar indices. The former has $54.76 billion in assets with an expense ratio of 0.19%, while the latter boasts $116.20 billion in assets and charges 0.04%.
Bottom Line
Passively managed ETFs are becoming increasingly popular among both institutional and retail investors due to their low cost, transparency, flexibility, and tax efficiency. They are excellent vehicles for long-term investors.
