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This article series aims at evaluating ETFs (exchange-traded funds) regarding the relative past performance of their strategies and metrics of their current portfolios. Reviews with updated data are posted when necessary.
DJD strategy and portfolio
Invesco Dow Jones Industrial Average Dividend ETF (NYSEARCA:DJD) started investing operations on 12/16/2015 and tracks the Dow Jones Industrial Average Yield Weighted Index. It has 27 holdings, a 12-month distribution yield of 3.36% and a cheap expense ratio of 0.07%.
As described by Invesco in the prospectus,
the Underlying Index is calculated using a yield-weighted methodology that weights all dividend-paying constituents of the Dow Jones Industrial Average™ by their twelve-month dividend yield defined as a stock’s annual dividend (not including any special dividends) divided by its price. The Underlying Index is rebalanced semi-annually (…)
The underlying index description reminds of the Dogs of the Dow strategy, which consists in buying the 10 companies with the highest dividend yields in the Dow Jones Industrial Average (DIA). The top 10 holdings of DJD are the “Dogs” on each rebalancing day. Then, positions may drift with price action. The current top 10 names are listed below with fundamental ratios. The fund is quite concentrated: they represent 56.7% of asset value. Exposure to risks related to the top names is similar for DIA, whose top 10 holdings weigh 55.4% in aggregate.
|
Ticker |
Name |
Weight% |
EPS growth %TTM |
P/E TTM |
P/E fwd |
Yield% |
|
VZ |
Verizon Communications, Inc. |
8.25 |
-0.20 |
6.76 |
7.41 |
7.52 |
|
IBM |
International Business Machines Corp. |
7.00 |
-67.77 |
67.59 |
14.07 |
5.00 |
|
MMM |
3M Co. |
6.82 |
0.48 |
10.19 |
11.41 |
6.10 |
|
WBA |
Walgreens Boots Alliance, Inc. |
6.65 |
-150.22 |
N/A |
7.02 |
6.09 |
|
DOW |
Dow, Inc. |
6.20 |
-56.40 |
13.14 |
16.77 |
5.32 |
|
CVX |
Chevron Corp. |
4.75 |
73.94 |
8.42 |
11.04 |
3.88 |
|
AMGN |
Amgen, Inc. |
4.63 |
44.96 |
15.03 |
12.28 |
3.85 |
|
CSCO |
Cisco Systems, Inc. |
4.29 |
-2.28 |
17.89 |
13.08 |
3.13 |
|
KO |
The Coca-Cola Co. |
4.09 |
-4.27 |
26.57 |
23.13 |
3.05 |
|
JNJ |
Johnson & Johnson |
3.99 |
-35.60 |
33.08 |
14.85 |
3.01 |
Three constituents of the Dow Jones are missing in DJD because they don’t pay dividends: Boeing (BA), Salesforce (CRM) and Disney (DIS).
The two heaviest sectors are technology (17.1% of assets) and consumer staples (16.3%). Compared to the parent index, DJD overweights consumer staples, energy, communication, materials, and to a lesser extent, energy. It underweights mostly healthcare, financials and consumer discretionary. DJD is more balanced than DIA across sectors.
Sector breakdown (Chart: author, data: Invesco, SSGA)
Performance
Since inception in December 2015, DJD has underperformed its parent index by about 21% in total return.
DJD vs. DIA since Dec. 2015 (Seeking Alpha)
It has lagged by 8.5% in the last 12 months.
DJD vs. DIA, last 12 months (Seeking Alpha)
The fund pays quarterly dividends. The annual sum of distributions has increased from $0.71 per share in 2016 to $1.38 in 2022. This is a growth of 94%, whereas the cumulative inflation has been about 23% at the same time (based on CPI). DJD looks quite attractive regarding past dividend growth, but the underlying index is not designed to guarantee it in the future.
DJD distribution history (Seeking Alpha)
In previous articles, I have shown how three factors may help cut the risk in a dividend portfolio: Return on Assets, Piotroski F-score, and Altman Z-score.
The next table compares DJD since 1/1/2016 with a subset of the S&P 500 including stocks with an above-average dividend yield, an above-average ROA, a good Altman Z-score, a good Piotroski F-score and a sustainable payout ratio. It is rebalanced annually to make it comparable with a passive index.
|
since 1/1/2016 |
Tot. Return |
Annual Return |
Drawdown |
Sharpe ratio |
Volatility |
|
DJD |
108.02% |
10.36% |
-33.97% |
0.67 |
15.05% |
|
Dividend quality subset |
146.38% |
12.90% |
-34.96% |
0.75 |
16.32% |
Past performance is not a guarantee of future returns. Data Source: Portfolio123
DJD lags this dividend quality subset by 38% in total return. However, the fund’s performance is real, whereas the subset is simulated. My core portfolio holds 14 stocks selected in this subset (more info at the end of this post).
Scanning DJD portfolio
DJD is significantly cheaper than DIA regarding the usual valuation ratios, as reported in the table below.
|
DJD |
DIA |
|
|
P/E |
14.73 |
19.7 |
|
P/Book |
2.71 |
3.83 |
|
P/Sales |
1.19 |
2.23 |
|
P/Cash Flow |
9.76 |
15.3 |
Data: Fidelity
In my ETF reviews, risky stocks are companies with at least 2 red flags among: bad Piotroski score, negative ROA, unsustainable payout ratio, bad or dubious Altman Z-score, excluding financials and real estate where these metrics are unreliable. Out of 27 holdings, three are risky regarding these criteria: Intel (INTC), Verizon (VZ) and Walgreens Boots Alliance (WBA). They weigh 17.9% of asset value, which is quite heavy.
Based on my calculation of aggregate Altman Z-score, Piotroski F-score and ROA, DJD is very close to DIA in portfolio quality.
|
DJD |
DIA |
|
|
Altman Z-score |
3.27 |
3.51 |
|
Piotroski F-score |
5.23 |
5.41 |
|
ROA % TTM |
7.34 |
7.67 |
Takeaway
Invesco Dow Jones Industrial Average Dividend ETF holds the 27 stocks of the Dow Jones Industrial Average paying a dividend, with weights based on yields. The fund is better balanced across sectors than the parent index. However, it is quite concentrated in the top holdings. DJD looks better than DIA regarding valuation, and quality is similar. Moreover, the dividend growth rate since inception has outpaced inflation by a wide margin. Nonetheless, total return is underwhelming, especially in the last 12 months.
