ETFs
A dividend ETF where Nvidia is the main holder?
You might be surprised to learn that a booming but low-yielding growth stock like Nvidia (NASDAQ:NVDA) is the top holding in a dividend-focused ETF, but that’s exactly the position it holds in the Fidelity High Dividend ETF (NYSEARCA:FDVV). Just because Nvidia and other similar stocks have low yields doesn’t mean that dividend fund should automatically count it, and FDVV is a good example of why, as we’ll see in this article.
I’m bullish on this $2.9 billion ETF from Fidelity based on its portfolio, which consists of an attractive mix of “new school” dividend stocks like Nvidia with “new school” dividend stalwarts. ‘old school’ like Pepsi (NASDAQ: PEP) and Philip Morris (New York Stock Exchange: PM). The ETF also benefits from a strong track record over the past few years, a 3.0% dividend yield, and reasonable fees.
What is the strategy of the FDVV ETF?
According to Fidelity, FDVV invests in an index “designed to reflect the performance of large- and mid-capitalization dividend-paying stocks that are expected to continue to pay and grow their dividends.”
Good mix of dividend stocks
FDVV offers decent diversification with 105 stocks, and its top 10 stocks represent a reasonable 31.2% of assets. Below you will find a snapshot of The 10 main titles of the FDVV using the TipRanks fund tool.
As you might have guessed from the title of the article, Nvidia is the top holding in the ETF, with a weighting of 6.5%.
And Nvidia isn’t the only high-growth, low-yield country dividend stocks of the technology sector which occupies an important place in the main FDVV stocks. Microsoft (NASDAQ: MSFT), Apple (NASDAQ:AAPL) and Broadcom (NASDAQ:AVGO) are the next three largest holdings in the fund.
Nvidia yields less than 0.1%, Microsoft and Apple have yields below 1.0%, and Broadcom is only slightly higher, yielding 1.2%.
You may be wondering what these low-yielding tech stocks are doing in a “high dividend” ETF.
FDVV’s strategy is to invest in companies that are likely to continue paying and growing their dividends, not just the highest yielding dividend stocks. Growth stocks like Nvidia and Broadcom are expected to grow their earnings over time and thus will have the ability to increase their dividend payouts in the future, making them a good choice for dividend funds like FDVV.
This expected earnings growth also makes them more attractive investments than many dividend stocks that have high yields but little or no growth and are essentially declining companies.
FDVV is prudent to include these stocks because, despite their lower yields, they have generated exceptional total returns over time through a combination of price appreciation and dividends. For example, Broadcom has generated an outstanding total return of 2,907% over the past decade, while Nvidia has generated an astonishing 26,839% over the same period.
The story continues
To be clear, past performance does not guarantee future results. These stocks are unlikely to continue growing at this rate in the coming years, but it illustrates why it’s worth it for dividend investors (and funds) to include low-yielding growth stocks in their strategies and paying dividends.
FDVV does a good job of mixing low-yielding, high-yielding stocks with more traditional, higher-yielding dividend stocks that investors are used to seeing in dividend ETFs. These include energy giants like ExxonMobil (NYSE:XOM) and Chevrons (NYSE: CVX) And basic consumer goods blue chips like Pepsi, Philip Morris and Procter & Gamble (NYSE:PG).
FDVV’s holdings collectively receive favorable ratings from TipRanks’ proprietary Smart Score system. THE Smart score is a quantitative stock rating system created by TipRanks. It rates stocks from 1 to 10 based on eight key market factors. A score of 8 or higher equates to an Outperform rating. Seven of FDVV’s top 10 stocks have Smart Scores equivalent to an Outperformance of 8 or higher, and Broadcom, ExxonMobil and Chevron have “Perfect 10” ratings.
FDVV itself presents an ETF Smart Score equivalent to an outperformance of 8 out of 10.
FDVV performance was strong
This combination of new-school, dividend-paying growth stocks and old-school dividend stocks has generated strong returns over time. As of May 31, FDVV had generated a strong annualized return of 11.1% over the past three years and a solid annualized return of 14.6% over the past five years.
This means that the dividend-focused FDVV has actually outperformed the broader market over the past three years, as has the Vanguard S&P 500 ETF (NYSEARCA: VOO) generated an annualized return of 9.6% over this period (as of May 31).
However, FDVV has lagged VOO slightly over the past five years, as VOO generated an annual return of 15.8% over a five-year period.
That said, this is still an admirable five-year return, and FDVV investors can feel good about the total returns the fund has generated for them. An investor who invested $100,000 in the fund five years ago would have $186,240 today.
Dividend above average and growing
FDVV yields 3.0%Its dividend yield is therefore double that of the S&P 500. FDVV has paid a dividend for seven years and has increased its dividend payout for the last three consecutive years.
Moderate fees
FDVV charges a very reasonable expense ratio of just 0.15%. This means the fund only charges $15 per year for every $10,000 invested. Assuming the fund returns 5% per year in the future and maintains this expense ratio, an investor who invests $10,000 in the fund will only pay $85 in fees over a five-year period.
Is FDVV Stock a Buy, According to Analysts?
As for Wall Street, FDVV gets a Moderate Buy consensus rating based on 83 Buys, 22 Holds and one Sell rating assigned over the past three months. FDVV stock average price target of $52.32 implies an upside potential of 11.6% from current levels.
Takeaways for investors
I’m bullish on FDVV because I like how the fund invests in both low-yielding but high-performing dividend-paying growth stocks, like Nvidia and Broadcom, and more traditional, high-yielding dividend stocks. higher but lower growth, such as ExxonMobil and Chevron. This solid strategy has led to attractive double-digit annualized returns over time.
Additionally, FDVV has an above-average dividend yield of 3.0% and an expense ratio of 0.15%. All in all, FDVV seems like a smart choice for investors.