Here’s a head-scratcher: iShares Core Dividend (DIVB), a dividend-focused exchange-traded fund (ETF) that we recently added to the Kiplinger ETF 20, gained 36% over the past 12 months through August, handily beating the 20% return in the S&P 500 over the same period. (Since June 30, when we added the ETF to the Kip ETF 20 roster, the fund has climbed nearly 12%, well ahead of the S&P 500, which has risen 3%.)
The index fund targets stocks in U.S. companies that pay the fattest dividends and buy back the biggest number of shares by dollar value. It holds roughly 380 stocks and yields 2.9%.
At last report, the fund’s top holdings — International Business Machines (IBM), Automated Data Processing (ADP), Accenture (ACN) and Paychex (PAYX) — bore no resemblance to the top stocks in the S&P 500: Nvidia (NVDA), Apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN) and Alphabet (GOOGL). That’s a plus in our view.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more – straight to your e-mail.
Profit and prosper with the best of expert advice – straight to your e-mail.
That said, tech shares, such as Cisco Systems (CSCO) and Dell Technologies (DELL), played a role in the fund’s superior performance earlier this year. (The fund reconstitutes every June, and those stocks are no longer in the portfolio.)
Energy stocks, boosted by higher oil prices amid tension in the Middle East, helped too. Top-10 stock Exxon Mobil (XOM) has climbed 26% since the start of the year.
A leader among peers
Core Dividend’s long-term record sparkles as well. The ETF’s annualized return over the past five years, 14%, ranks among the top 7% of its peer group (funds that focus on large-company stocks trading at bargain prices), and it beats the gain in the S&P 500.
The portfolio skews more toward growth-oriented sectors than its peer ETFs do. According to financial data firm Morningstar, tech stocks make up 33% of the portfolio, nearly double the exposure to that sector in the typical large-value fund.
But Core Dividend also holds a chunk of assets in sectors that tilt toward value, such as energy, financial services and healthcare.
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.