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What Makes iShares' Dividend and Buyback ETF Launch Timely?

Most recently, iShares came up with a package to create value for its stakeholders. Many products are available in the market on either buyback or dividend, but targeting both at a time takes the newly launched fund – iShares U.S. Dividend and Buyback ETF DIVB – to another level.

Moreover, the launch looks timely given talks of President Trump’s tax reform passing in the medium term. This in turn is likely to boost the dividend and buyback ETF (read: 5 Ways to Play Growing Dividends With ETFs).

Inside DIVB

The fund looks to track the Morningstar US Dividend and Buyback Index and hold about 384 stocks in total with none accounting for more than 4.98% of the fund. Apple (4.98%), Microsoft (3.14%) and Johnson & Johnson (1.97%) are the top three stocks.

As far as sector exposure is concerned, Information Technology (21.13%) gets the top priority. Financials (17.27%), Consumer Discretionary (13.74%) and Health Care (13.22%) are the top the sectors of the fund. It charges 25 bps in fees.

How Does It Fit in a Portfolio?

Most investors focus on dividends and stock buyback program on long-term value realization. Also, this strategy gives protection to investors against stock market volatility and are “proven drivers of long-term stock returns.”

The Trump administration is also proposing a move from the current worldwide tax system to a territorial system, letting companies send their offshore profits back to the United States without extra taxes.

Since Trump proposes a tax on more than $2.5 trillion in offshore earnings, a one-time repatriation tax and likely tax cuts could boost share repurchases by companies. This makes the case for buyback ETF investing important (read: GOP Nears Tax Reform: Buy These ETFs).

Moreover, U.S. companies are sitting on huge cash balances, thus being at ease when it comes to buying back their shares. Citi strategists believe that “the US has become a capital-lite and distribution-heavy stock market.”

Tax savings may also result in fatter and faster dividend hikes. S&P Global “expects to see a clearly communicated and orderly distribution of capital through share buybacks, dividends, and to a lesser extent, debt repayments,” if repatriation comes. This once again reinforces the case for investing in DIVB.

Competition

There are already products in the buyback space. These are PowerShares Buyback Achievers Portfolio PKW, which looks to track companies that have implemented a net reduction of 5% or more in shares outstanding in the last 12 months (see Total Market (U.S.) ETFs here). 

Another buyback ETF is SPDR S&P 500 Buyback ETF SPYB, which measures the performance of the top 100 stocks with the highest buyback ratio in the S&P 500 in the last 12 months. Yet another fund AdvisorShares Wilshire Buyback ETF TTFS looks to generate long-term capital appreciation.

As far as dividend ETFs are considered, there are products aplenty in the market. In this context, the new fund may get competition from the likes of SPDR S&P Dividend ETF SDY and ProShares S&P 500 Dividend Aristocrats ETF NOBL. However, since iShares’ newly launched fund targets both traits at a time, it has a fair chance of garnering investors’ attention (read: An Investor's Guide to Dividend Aristocrat ETFs).

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SPDR-SP DIV ETF (SDY): ETF Research Reports
 
ADVSR-WIL BY BK (TTFS): ETF Research Reports
 
PRO-SP5 ARISTOC (NOBL): ETF Research Reports
 
PWRSH-BYBK ACHV (PKW): ETF Research Reports
 
SPDR-S&P500 BB (SPYB): ETF Research Reports
 
ISHR-US DIV BB (DIVB): ETF Research Reports
 
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