ETF Battles: A Dividend Income Duel with CGDV vs. DIVO vs. FDVV!
Historically, dividends have played a significant role in the total returns of the S&P 500 over long periods of time. Dividends, for example, have contributed to roughly 30 to 40% of the total returns of the S&P 500. That means that a substantial portion of the index's overall performance can be attributed to reinvested dividends, rather than solely on capital appreciation. Today's audience requested a dividend ETF battle between three ETFs from Amplify, the Capital Group, and Fidelity.
So, which ETF is the best choice? Find out right after this. A cordial welcome to all you're watching ETF battles, we're in season six, and I'm Rona B. Legi. If you're new to the program, welcome aboard. Be sure to hit that subscribe button to join our community and also hit the like button if you've been enjoying the show.
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Today's dividend ETF bout was requested by a viewer named Regal Garcia, and it's between dividend paying ETFs from Amplify, the Capital Group, and Fidelity. This is going to be a good one. There's a lot of interest in dividend paying ETFs, so how will this go down? Helping us to sort through it is a duo extraordinaire. We've got Shaina Sisco with Bancree Capital Management and David Durkin with the street.com. Judges, great to see you again, happy to be here.
Our four battle categories are cost, exposure strategy, performance and yield combined, and then we've got our mystery battle category. Mystery is, of course, where our judges can surprise us with any factor or thing that they feel is important to today's contest. Our judges can also nominate wild card ETFs if they feel there's better choices elsewhere. I've got the scorekeeping chores and at the end of the program, we'll declare an overall winner. Remember that none of the battle outcomes that we ever do on this program are ever predetermined or known in advance by myself or our judges.
Let's kick things off with the first category, cost. Shaina, please get us started. All right, so for once, Dave, I'm in Dave's world. This is a little different than the traditional alt battles, but I take the challenge. When I look at this from an expense ratio standpoint, FDVV, which is the Fidelity Fund at 16 basis points, is the cheapest fund. Now, it doesn't have the best trading spread. That actually belongs to CGDV at one cent, but the difference in the overall expense ratio is so significant that it more than overcomes that. So, for me, it's Fidelity FDVV at 16 basis points.
Dave, you're up next on cost. How do you see it? Well, Shaina, I appreciate your kind words. I'm still honored to be in the presence of the queen of alts. Stop. Yeah, I agree. FDVV at 16 basis points is my winner. I think liquidity is still pretty good on all of these funds. CGDV, like Shaina said, has the narrowest spread out of them, but as far as pure expense ratio, I think we'll keep it simple. The Fidelity Fund is the winner.
Exposure strategy is the next category, and Dave, you're still up, so break it down for us. I was in a battle a little while ago where CGDV was included as well, so I will make the same complaint today as I did then, excuse me, and that's to say that I don't like the strategy of the fund where it says it targets companies that pay dividends or may pay dividends. Basically, that just means it can include non-dividend payers. I don't think that you necessarily want that kind of strategy if you're looking at a dividend paying fund. Now granted, if you look at the portfolio, the vast majority of them are dividend payers, so you are getting a large cap dividend fund in there.
The last time I looked at this portfolio, it had Meta, it had Google, it had Salesforce. These are all before they were paying dividends, and obviously Meta and Google are paying dividends now, but even in the portfolio today, there's Amazon, there's Uber, and it's like these companies aren't paying dividends. I just don't understand why they're in there. I know it gives it a bit of a different profile, but I like my dividend ETFs to be kind of pure plays, and CGDV just isn't quite there. FDVV has a similar problem. If you look at the index it targets, it looks 70% yield, 15% on the payout ratio, 15% on dividend growth and how it selects companies.
You have the heavy tilt on yield, obviously, but you do get a bit of a dividend growth and quality component in there as well. The issue I have with this fund is that its waiting strategy, once it gets those companies, it heavily tilts towards cap waiting, and what that does is it lifts the mega caps up to the top of the portfolio regardless of what they're paying. If you look at the top four holdings of FDVV, it's Apple, it's Nvidia, it's Microsoft, and it's Broadcom. Those four companies account for nearly 20% of the portfolio, and Broadcom is the only one that's paying even a 1% yield right now, so it doesn't really line up with the high yield nature of the fund. Now, if you look at the fund overall, it pays a 2.7% yield, so it isn't above average yield, but I just don't like how it allocates properly according to what the true objective of the fund should be.
DVO is a little different. That's a concentrated portfolio that focuses on dividend payers, dividend growers, and then it layers the covered call strategy on select stocks on top of that to give it the big yield. This takes more of a traditional kind of quality approach. It looks at dividend growth, earnings, cash flows, things like that. It does have a very cyclical lean right now, so I think you need to understand that before jumping in, but I'm going to give the win here to DVO just because I think it does a little more of what I think a dividend ETF should do with the caveat that you need to understand what the fund is. This is a covered call fund, so you're going to be giving up some upside potential in exchange for that higher yield, so with that understanding, I'll give DVO the narrow win on this one.
Got it. Shaina, you're up next. How do you see it when it comes to exposure strategy? As the queen of alts, of course, I'm going to be drawn to the one that does a bought strategy, but it's actually not my winner. I have a wild card for my winner, but let's kind of walk through and add to some of what Dave pointed out. I'm going to start with CGDV, and to add on to what Dave already talked about, I personally hate the way Cap Group manages their products. This approach, where they're so large in their assets, what they end up doing is they have groups of managers, they have teams of PMs, and they all work together, and what Cap Group does is they sleeve positions of the portfolios to different teams, but none of those teams invest the same way, so it makes it really hard to have consistency when you look at the portfolio and know what you're getting because one team could be doing the approach that Dave's talking about, which is what's leading to having some of those growth year names, while the other team could be really actually focused on dividend, and you really don't know.
For that reason, it's just very the Cap Group funds, and I know they're very popular American funds. Obviously, Cap Group is massive. It's very popular for a lot of reasons, which I understand, but for me, I want somebody who takes ownership of the strategy, so I know what I'm getting. I know how to understand the return streams. I know what's going to drive returns in certain markets, but when you have multiple teams that aren't doing the same thing and you mishmash them together, you don't get anything that you can work with to set expectations for returns or what that portfolio is going to look like at any given time, so that is, for me, my biggest issue with CGDV.
With FDVV, it's important to point out that is actually not managed by Fidelity. That is sub-advised by Geode, so it's not even really managed in-house at Fidelity. That said, I do like that at least in that product, there's some structure to the way that they screen, and unlike the Cap Group fund, I know what I'm getting. I know the positives, I know the negatives, and I can set somewhat of a return expectation. Obviously, I like DVO because it's a buo strategy. I'm going to be attracted to the thing that's doing the more interesting alternative kind of thing to add to the product. It has the highest yield, and it has a good track record. It's very attractive.
However, if I was just picking from the three we had, DVO would be my winner, but I wanted to think about the audience. We're doing a high yield dividend battle, and I'm thinking, well, if I'm going to suggest to somebody a strategy that's going to be kind of pure in that sense, and I want high yield and dividend payers in my portfolio, what would I use? For me, that is DHS, which is the Wisdom Tree High Dividend Income Fund. It addresses some of the market cap issues. Wisdom Tree exists because they thought market cap weighted indexing was the wrong way to approach building portfolios, so they don't do market waiting. It is highly diversified. Believe it or not, most of the funds in this battle are actually really, really concentrated, which is so weird for me because there's so much.
