Key Points
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The First Trust Rising Dividend Achievers ETF has one of the best dividend ETF track records of the past decade.
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Its selection process focuses on quality fundamentals, growing dividends, and strong cash positions.
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Its portfolio construction strategy and performance history make it as competitive as any current dividend ETF.
- 10 stocks we like better than First Trust Rising Dividend Achievers ETF ›
The First Trust Rising Dividend Achievers ETF (NASDAQ: RDVY) may not be as familiar to you as the Vanguard Dividend Appreciation ETF or the Schwab U.S. Dividend Equity ETF. But in terms of historical returns and portfolio construction strategy, it should be.
Over the past decade, its 16.5% average annual return puts it at No. 1 in the U.S. Dividend ETF category. It’s also beating the next closest fund, the Siren DIVCON Leaders Dividend ETF, by more than two full percentage points annually. It’s even outperformed the Vanguard S&P 500 ETF over the past decade.
More impressively, it has accomplished this track record without having tech as its biggest sector holding. That distinction currently belongs to financials, which accounts for roughly 31% of the portfolio and has consistently been the top holding over the past decade.
The First Trust Rising Dividend Achievers ETF is already beating virtually every U.S. dividend ETF out there, as well as the S&P 500. Considering that over the past 20 years, around 97% of actively managed large-cap equity funds have trailed their benchmarks, which is often the S&P 500, this ETF is one of the market’s true elite.
How RDVY has performed so well
This ETF tracks the Nasdaq US Rising Dividend Achievers Index. It screens for large-cap companies that:
- Paid a dividend in the trailing 12-month period that’s greater than the dividend paid in the trailing 12-month period three and five years prior.
- Have positive earnings per share (EPS) in the most recent fiscal year that are greater than the EPS three fiscal years prior.
- Have a cash-to-debt ratio greater than 50%.
- Have a trailing 12-month period payout ratio no greater than 65%.
This strategy helps to ensure that:
- Dividend payments are consistently increasing.
- Financial health is both improving and sustainable.
- The company has the cash to continue paying dividends.
There has been some tech influence in the portfolio. The sector currently accounts for 26% of the fund, while Applied Materials, Lam Research, and KLA Corp. are the top three positions.
This is a portfolio built for quality, durability, and sustainability above all else.
Why RDVY works in a broader portfolio
This fund is much different than the S&P 500, which makes for a good pairing. The focus on quality fundamentals and its strong dividend growth metrics make it an ideal fit for almost any portfolio. After all, who doesn’t want to own high-quality companies?
It isn’t, however, a typical dividend ETF. The 56% combined allocation in just financials and tech stocks makes it top-heavy and prone to higher volatility. The 0.47% expense ratio is much above average, and the current yield of just 0.8% won’t get income seekers too excited.
Total return is the ultimate goal, and the First Trust Rising Dividend Achievers ETF has clearly delivered that. Its smart portfolio construction strategy, focus on healthy fundamentals, and fantastic track record make it as competitive as any dividend ETF out there today.
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David Dierking has positions in Schwab U.S. Dividend Equity ETF and Vanguard Dividend Appreciation ETF. The Motley Fool has positions in and recommends Applied Materials, KLA, Lam Research, Vanguard Dividend Appreciation ETF, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
