Here's How Many Shares of the Fidelity High Dividend ETF (FDVV) You'd Need for $500 in Yearly Dividends
Key Points
The Fidelity High Dividend ETF yields more than 3%.
Companies with high payout ratios are excluded from the portfolio to ensure dividend sustainability.
This ETF has a surprisingly large weight to tech stocks.
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Dividend-focused exchange-traded funds (ETFs) offer a lot of perks, including broad-based portfolios that eliminate the chore of selecting individual stocks and reliable, potentially growing payouts. The Fidelity High Dividend ETF (NYSEMKT: FDVV) checks those boxes.
This Fidelity ETF sports a trailing 12-month yield of 3.02%, or more than double the dividend yield of the average S&P 500 stock. In cash terms, the fund pays $1.72 a share per year, meaning an investor needs to own 290.69 shares to generate $500 in yearly income from this fund. Based on the Nov. 28 closing price of $57.01, 290.69 shares of this ETF cost $16,572.23.
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This dividend ETF merits consideration by investors with long-term time horizons. Image source: Getty Images.
This $7.41 billion ETF follows the Fidelity High Dividend Index, a gauge comprised mostly of domestic large- and mid-cap equities. One of the nifty things about the index's methodology, and something that can prove meaningful to long-term investors, is that it excludes the stocks with the highest payout ratios from its selection universe. Companies with elevated payout ratios can be dividend offenders or yield traps -- situations smart investors look to avoid.
The stocks that make the cut for inclusion in this ETF's portfolio are then scored on the basis of yield, payout ratio, and dividend growth. Regarding dividend growth, which is of the utmost importance to long-term equity income investors, this Fidelity ETF allocates about 49% of its weight to technology and financial services stocks.
Alone, the fund's 27.57% allocation to tech stocks is above average compared to many competing ETFs, but that exposure has some advantages. Many large-cap U.S. tech companies are producers of steady cash flow, and some are displaying commitments to gradually raising payouts.
This dividend ETF also has an impressive track record. Since coming to market in 2016, it's generated more income while outperforming the average large-cap value fund. It carries an annual expense ratio of 0.16%, or $16 on a $10,000 investment.
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Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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