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A Hidden Gem Among Dividend ETFs

September 12, 2017: 08:42 AM ET

CDL, which is just over two years old, follows the CEMP US Large Cap High Dividend 100 Volatility Weighted Index. The ETF is most certainly a smart beta offering as it provides a unique strategy for not only generating income, but reducing volatility as well. CDL “combines fundamental criteria and volatility weighting in an effort to outperform traditional cap-weighted indexing strategies,” according to VictoryCapital.

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Several ETFs currently on the market, including CDL, aim to combine the advantages of low volatility stocks with income-generating capabilities of dividend payers.

CDL's underlying index takes the the highest 100 dividend-yielding stocks of the CEMP US Large Cap 500 Volatility Weighted Index and those names “are weighted based on their daily standard deviation (volatility) over the last 180 trading days compared to the aggregate mean,” according to the issuer.

There are times when CDL's benchmark can include less than 100 stocks due to a filter that mandates member firms have positive earnings. The index caps sector weights at 25 percent and when that threshold is exceeded, small-cap stocks are removed to bring that sector back to 25 percent of the index's weight.

CDL has a trailing 12-month dividend yield of about 3.2 percent, or about 130 basis points above the comparable dividend yield on the S&P 500. The ETF also yields well in excess of 10-year U.S. Treasuries.

CDL currently holds 102 stocks and five of the ETF's top six holdings are members of the Dow Jones Industrial Average — McDonald's Corporation (NYSE: MCD), Johnson & Johnson (NYSE: JNJ), The Coca-Cola Co (NYSE: KO), Procter & Gamble Co (NYSE: PG) and Wal-Mart Stores Inc (NYSE: WMT). All five of those companies have dividend increase streaks that can be measured in decades.

The ETF is consumer-heavy as the consumer discretionary and consumer staples combine for 28 percent of the fund's weight. Utilities currently account for just over a quarter of the fund's weight, in part explaining CDL's tempting dividend yield. The financial services sector, the second-largest sector weight in the S&P 500, is 13.5 percent of CDL's roster.

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Index Last Change % Change
Dow 22,329.62 -29.61 -0.13%
Nasdaq 6,419.28 -3.41 -0.05%
S&P 500 2,499.13 -1.47 -0.06%
Treasuries 2.26 -0.02 -0.75%
Data as of 12:48pm ET
Company Price Change % Change
Advanced Micro Devic... 13.20 -0.21 -1.57%
Bank of America Corp... 25.02 -0.14 -0.56%
Apple Inc 151.52 -1.87 -1.22%
General Electric Co 24.90 0.16 0.63%
Ford Motor Co 11.84 0.12 0.98%
Data as of 12:33pm ET

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