With this ETF, investors don’t have to sacrifice growth to access reliable, growing dividends.
Investors shopping for top exchange-traded funds (ETFs) can’t be blamed if they’re focusing on funds holding equities associated with artificial intelligence (AI) and technology. After all, those have been market-leading segments for an extended period.
Still, investors shouldn’t get sidetracked. In the quest to identify some of the top ETFs to buy today, the First Trust Rising Dividend Achievers ETF (RDVY +0.16%) merits consideration. This ETF, which turns 12 years old next month, could be a potent addition to a wide variety of portfolios, but before diving in, investors should examine the fund’s plumbing.
This tech-heavy dividend fund is one of the top ETFs to consider today. Image source: Getty Images.
This isn’t your grandfather’s dividend ETF
Home to $18.21 billion in assets under management (AUM) as of Dec. 1, First Trust Rising Dividend Achievers ETF is among the top 10 in terms of size in the dividend ETF category. More important is this ETF’s long-running track record of outperforming peers, often by sizable margins.
RDVY Total Return Level data by YCharts
Knowing how First Trust Rising Dividend Achievers ETF generated that stellar run is important because while past performance isn’t a guarantee of future returns, a fund’s methodology can give investors a sense of what to expect. In the case of this dividend ETF, it focuses on four primary pillars.
First, member firms must have paid a dividend over the trailing 12 months that is “greater than the dividend paid in the trailing twelve-month period three and five years prior.” Second, companies eligible for inclusion must have positive earnings over the past year, and those profits must exceed those notched in the prior three fiscal years.
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Other mandates include prospective holdings must have cash-to-debt ratios of at least 50% and they can’t have trailing 12-month payout ratios in excess of 65%. For some dividend-paying companies, those are high hurdles to clear, but adhering to those guidelines helps this ETF deliver a quality portfolio while steering investors away from yield traps.
The end product is something many investors may view as enticing, as this ETF allocates almost 27% of its roster to tech stocks. It’s not common for dividend ETFs to feature Alphabet and Nvidia among their top six holdings, but this ETF breaks from the pack and it’s worked out well for investors, helping make this fund one worth looking into.
Todd Shriber has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Nvidia, and Vanguard Dividend Appreciation ETF. The Motley Fool has a disclosure policy.