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Investing in dividend stocks can be a way to generate steadier income from stock holdings. High-yield dividends are often associated with established companies that have a track record of profitability. For investors seeking to reduce exposure to potentially volatile growth segments, dividend-focused exchange-traded funds (ETFs) can be one approach.
The Fidelity High Dividend ETF (FDVV) is designed to invest in large- and mid-cap stocks of companies expected to continue paying and growing dividends.
The Fidelity High Dividend ETF holds 112 positions, which is less diversified than many other ETFs. The fund’s dividend yield is 2.8%, and it charges an expense ratio of 0.15%.
Sector exposure is relatively broad for a dividend ETF. The portfolio includes 26.7% information technology, 18.9% financials, 14.5% consumer discretionary, 11.3% consumer staples, and 9.2% utilities.
Despite its dividend focus, the fund’s largest holdings are heavily weighted toward technology. As of April 30, the top four holdings are Nvidia, Apple, Microsoft, and Broadcom. Together, these four tech stocks account for about 20.5% of the fund.
For investors aiming to diversify away from tech stocks, this concentration may be a drawback.
FDVV was launched in September 2016. Over nearly a 10-year period, the fund has delivered average annual returns (by net asset value) of 13.3%.
However, the S&P 500 has performed even better over the same general timeframe. For example, an initial $10,000 investment in FDVV at inception would be worth about $23,540 today. By comparison, a $10,000 investment in an S&P 500 index fund would be worth about $33,790—about 44% higher.
The fund has also underperformed the S&P 500 year to date and over the past five years.
While past performance does not guarantee future results, the combination of a dividend mandate with a top-heavy technology tilt may not align with the expectations of many dividend-focused investors. The article suggests that investors who want different exposures may consider alternatives, such as a Nasdaq-100 ETF for greater tech exposure, other dividend ETFs for a more value-oriented dividend profile, or a low-cost total stock market index fund to reduce the risk of concentrating in a single industry or stock type.
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