Key Points
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The Fidelity High Dividend ETF recently hit a record high and pulled back modestly.
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It’s got more growth chops than meets the eye.
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This fund has some surprises compared to other high-dividend ETFs.
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As of the end of August, there were nearly 5,500 exchange-traded funds (ETFs) changing hands on U.S. exchanges. With a number that high, it stands to reason that a few ETFs here and there have names that might confuse investors.
Take the case of the Fidelity High Dividend ETF (NYSEMKT: FDVV). To be sure, this $10.2 billion ETF carries a dividend yield of 2.8%, which, relative to the roughly 1.1% dividend yield on the largest S&P 500 ETF, is “high.”
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However, this Fidelity ETF, which turned 10 years old last month, isn’t the quintessential high-dividend ETF. The name isn’t an act of deception, but the fund isn’t a twin to other high-yield dividend ETFs. It’s really not related to those funds at all, and that’s all right. In fact, those differences are among the reasons I’m eyeing this Fidelity fund, as it resides just 4.2% below its all-time high.
FDVV is different, and that’s good
When investors search for high-dividend stocks via the ETF wrapper, they’ll often encounter funds that are heavily allocated to consumer staples, energy, and utilities.
Look at the iShares Core High Dividend ETF (NYSEMKT: HDV), one of the largest products in the high-dividend ETF camp. It allocates nearly two-thirds of its portfolio to those three sectors. That makes sense because stocks from those sectors are known for having above-average dividend yields.
Obviously, the Fidelity ETF also has “high dividend” in its name, but it takes a much different approach. Rather than leaning into traditional high-yield sectors, this ETF devotes 31.2% of its portfolio to technology stocks. Its largest holding is Nvidia, which, for all its attractive traits, sports a dividend yield of just 0.24%.
Put succinctly, this Fidelity fund does things differently than many traditional dividend ETFs. Think of this ETF as a three birds/one stone proposition, with the birds being participation in artificial intelligence (AI), better potential for noteworthy long-term upside, and access to companies, including tech, that are growing their payouts.
More reasons to like this dividend ETF
There are other reasons I’m a fan of this Fidelity ETF, including that it pairs well with prototypical high-yield stocks or ETFs.
Speaking of such fare, investors should remember that there’s often a price of admission with defensive stocks. Looking at some of the largest consumer staples companies by market cap, as just one example, that group is richly valued. As of Oct. 20, the S&P 500’s consumer staples traded at 23.8 times earnings compared to 19.8 times for the index’s technology stocks.
Likewise, many high-dividend utility stocks are sensitive to higher interest rates, which helps explain why the largest ETF tracking that sector is off nearly 8% over the past 90 days. When Treasury yields rise, sectors viewed as bond proxies, such as utilities, are often punished, and that history is playing out again this year.
Although the Fidelity ETF does feature holdings in staples and utilities, those sectors are dwarfed by lower-yielding groups such as tech and financial services. And the fund charges just 0.15%, or $15 on a $10,000 investment, per year, making it accommodative to buy-and-hold investors.
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Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
