RDIV: Reasonable Dividend ETF, But Better Choices Are Out There

The Invesco S&P Ultra Dividend Revenue ETF (NYSEARCA:RDIV) is an index exchange-traded fund, or ETF, investing in sixty high-yield, mid-cap and large-cap U.S. equities. RDIV offers investors an above-average 4.1% dividend yield and a cheap valuation, but is a bit more expensive than average, with a 0.39% expense rate.

Although there is nothing inherently wrong with Invesco S&P Ultra Dividend Revenue ETF, there are many dividend ETFs out there with similar value propositions, but with much lower expenses. These include the Vanguard High Dividend Yield Index Fund ETF Shares (VYM), with a 0.06% expense ratio, and the Schwab U.S. Dividend Equity ETF™ (SCHD), also with a 0.06% expense ratio. In my opinion, these and other similar dividend ETFs are slightly stronger investment opportunities than RDIV, due to the latter’s high expenses. As such, I would not invest in the fund.

RDIV – Basics

• Investment Manager: Invesco
• Underlying Index: S&P 900 Dividend Revenue-Weighted Index
• Dividend Yield: 4.12%
• Expense Ratio: 0.39%
• Total Returns CAGR 10Y: 10.28%.

RDIV – Overview

RDIV is a dividend equity ETF, tracking the S&P 900 Dividend Revenue-Weighted Index. It is a simple index, investing in the 60 highest-yielding stocks in the S&P 900, but excluding the top 5% of securities by yield, and top 5% of securities within each sector by dividend payout ratio. Said exclusions are meant to prevent the fund from investing in yield traps and the like, in theory at least. As with most other indexes, applicable securities must also meet a basic set of inclusion criteria. It is a revenue-weighted fund, somewhat similar to more common market-cap weighting scheme. RDIV is a somewhat expensive fund, with an expense ratio of 0.39%.

RDIV is a moderately well-diversified fund, with investments in 60 securities from all relevant industry segments. RDIV’s portfolio is almost evenly divided between large-caps and mid-caps. There are technically some small-caps too, although this seems more of a technicality than anything else: companies in the S&P 900 are all quite large. Diversification is somewhat lower than that of the average U.S. equity index fund, as these tend to invest in hundreds, some even thousands, of securities.

Looking at industry exposures, RDIV is significantly overweight old-economy industries, especially financials, while being underweight tech, energy, and health-care. Financials and tech weights are driven by yields, I’m not so sure about the other industries. The fund seems to exclude most of the larger, well-known healthcare companies, including Johnson & Johnson (JNJ), Pfizer (PFE), and Eli Lilly (LLY), as well as the oil majors. I’m unsure why this is the case, as these companies seem to meet all applicable criteria. Perhaps they barely fail them, with dividend yields or payout ratios just barely below the cutoffs.

RDIV is somewhat more concentrated than average, with the fund’s top ten holdings accounting for slightly under 50% of its portfolio. These are as follows.

In general terms, RDIV’s underlying index seems sensible enough, and the fund is moderately diversified, albeit a bit less than the average U.S. equity index fund.

Let’s now have a look at the fund’s benefits.

RDIV – Benefits

Above-Average 4.1% Dividend Yield

RDIV focuses on the 60 highest-yielding U.S. equities, subject to several important inclusion and exclusion criteria. Said focus should result in a reasonably good yield, at least assuming the relevant criteria are not too strict. RDIV currently yields 4.1%, a reasonably good yield for an equity index ETF, and slightly higher than that of most dividend equity ETFs.

RDIV’s above-average dividend yield is a benefit for the fund and its shareholders, although only a slight advantage relative to peers.

RDIV’s dividends have grown at a CAGR of 4.9% since inception, a reasonable figure, but somewhat below average, with most U.S. equity index ETFs seeing long-term dividend growth of 6.0% – 8.0%. Growth has been incredibly uneven, with the fund seeing no net dividend growth during the past five years. Uneven growth is particularly noticeable when comparing the fund’s yield on cost:

with that of VYM:

As can be seen above, VYM’s yield on cost is a reasonably smooth, upwards-sloping line, as the fund’s dividends tend to see consistent, long-term growth. RDIV’s yield on cost has increased since inception too, but the line is much flatter, much less smooth, and with many more bumps along the way.

SCHD looks like VYM:

As does the S&P 500 (SP500):

RDIV’s below-average, inconsistent dividend growth track-record is a disadvantage of the fund relative to its peers.

Cheap Valuation

RDIV focuses on U.S. equities with particularly strong yields. Dividend yields are somewhat of a valuation metric, so focusing on said metric should result in a portfolio with a reasonably low, competitive valuation. This does seem to be the case, with the fund sporting a P/E ratio of 11.6x, and a P/B ratio of 1.2x, both low figures.

Cheap valuations could lead to significant capital gains and market-beating returns, contingent on valuations normalizing, and so are an important benefit for shareholders. Value and dividend stocks outperformed during 2022, underperformed during 2023. Overall returns and performance varies depending on the fund and time period, but RDIV has outperformed since early 2022, although only slightly so.

RDIV’s prospective total returns are quite strong, due to the fund’s above-average yield and cheap valuation. As yields are not all that high on an absolute basis, total returns are strongly dependent on market conditions and sentiment, and are far from certain. Conditions do seem favorable to value stocks and cheaply valued equity segments right now, so recent outperformance could very easily continue moving forward.

RDIV – Performance Analysis

RDIV’s performance track-record is reasonable, with the fund mostly matching / slightly underperforming the S&P 500 since inception. Similar results vis a vis its peers, on average. RDIV’s performance has picked up these past few years, especially since early 2022.

Although the figures above are accurate, I feel that they paint an overly rosy picture of RDIV’s performance. The fund has only matched the performance of the S&P 500 these past three years because it suffered outsized losses in early 2020, when the coronavirus pandemic started in earnest. Said losses were partly due to the fund’s investment in mid-caps, as these stocks tend to be riskier than average, and suffer above-average losses during downturns and recessions. I believe that RDIV’s concentration / comparative lack of diversification also played a role, as most other diversified funds fared much better.

Considering the above, investors should consider RDIV’s recent outperformance to be indicative of a risky, volatile fund, and so should not be considered a positive. RDIV’s overall performance track-record remains reasonable enough, however.

Quick VYM and SCHD Comparison

RDIV provides investors with an above-average 4.1% dividend yield and a cheap valuation. Although these are important benefits, they are quite common too, with most dividend equity ETFs having a similar value proposition, with a couple extra advantages.

VYM, one of the largest, most well-known dividend equity ETFs, yields 3.2% and sports a cheap valuation, same as RDIV. VYM is quite a bit cheaper, with a 0.06% expense ratio, more diversified, with investments in over 400 stocks, and has a stronger, more consistent dividend growth track-record. VYM seems like a slightly superior investment opportunity than RDIV, although these are not identical funds, with VYM exclusively investing in large-caps, while RDIV has sizable mid-cap investments.

SCHD is another large, well-known dividend equity ETF. It yields 3.5% and sports a cheap valuation, same as RDIV. SCHD is quite a bit cheaper too, with a 0.06% expense ratio, and has a stronger, more consistent dividend growth and performance track-record. SCHD also seems like a slightly superior investment opportunity than RDIV, but RDIV does have that mid-cap exposure.

RDIV does yield a bit more than VYM and SCHD, but the difference is less than 1.0%, and dividend growth has been much lower, and much more inconsistent.

Compare RDIV to most other dividend equity ETFs and you’ll get similar results.

Conclusion

RDIF is a dividend equity index ETF. It offers investors an above-average 4.1% dividend yield and a cheap valuation, but is a bit more expensive than average, with a 0.39%. In my opinion the fund is a buy, although some of its peers have similar, slightly stronger value propositions.