Best Dividend ETF: Evaluating Capital Group Dividend Value ETF

Highlights

• The Capital Group Dividend Value ETF ranks as the eighth-largest dividend-focused ETF, managing approximately US$17.7 billion in assets.
• The ETF targets large-cap companies with above-average dividend payouts and potential for capital appreciation.
• Despite its popularity, the fund carries a higher expense ratio and lower yield compared to certain peers in the dividend ETF space.

Best Dividend ETF: Evaluating the Capital Group Dividend Value ETF Amid Market Alternatives

The dividend-focused exchange-traded fund (ETF) sector plays a key role in income-focused equity strategies, particularly for exposure to well-established large-cap names. Many of the companies within these funds are components of indexes such as the S&P 500, Dow Jones Industrial Average, and the TSX Composite Index for Canadian-linked assets. One fund in this space, the Capital Group Dividend Value ETF (NYSEMKT: CGDV), stands out for its size and composition but may differ from peers in terms of yield and expenses.

Overview of the Capital Group Dividend Value ETF

The Capital Group Dividend Value ETF is an actively managed fund that emphasizes dividend-paying equities with strong growth potential. The ETF manages approximately US$17.7 billion in assets, placing it among the top ten dividend-focused ETFs by assets under management.

The ETF primarily targets large-cap U.S. firms known for consistent dividend payouts and sound business fundamentals. Although the majority of its portfolio remains concentrated within the U.S., up to 10% of the fund may be allocated to international companies, especially those with the capacity to initiate or grow dividends in the future. Additionally, a minor portion of the fund's assets may include stocks that do not currently pay dividends but are assessed to align with its broader investment strategy.

Top Holdings and Sector Exposure

The fund’s top holdings are dominated by mature, diversified corporations across multiple industries, particularly consumer goods, technology, and healthcare. Some of the notable holdings include Johnson & Johnson (NYSE:JNJ), Microsoft Corporation (NASDAQ:MSFT), and Procter & Gamble Co. (NYSE:PG). These companies are recognized for long-standing dividend payment histories and large-scale global operations.

In the industrials sector, exposure includes firms with consistent free cash flows and predictable earnings. The ETF also includes exposure to financials, consumer discretionary, and energy—sectors known to include firms such as The Home Depot Inc. (NYSE:HD) and Chevron Corporation (NYSE:CVX), which may feature in the fund during rebalancing periods.

The diversification across both defensive and cyclical sectors helps to balance income generation with capital appreciation. However, the fund's concentration in mega-cap U.S. firms may limit exposure to mid-cap or small-cap companies with higher dividend yields.

Performance and Yield Metrics

While CGDV offers a portfolio of high-quality dividend-paying companies, its current yield is lower relative to certain other dividend ETFs. This is partly due to its emphasis on companies that not only distribute dividends but also reinvest earnings into growth.

The ETF's expense ratio also tends to be higher than the average for passively managed dividend ETFs. This is attributed to its active management approach, which involves regular re-evaluation of holdings based on evolving fundamentals and dividend sustainability.

Compared to broader index-tracking ETFs or funds focused on high dividend yield strategies, CGDV trades off a lower yield for potentially higher capital appreciation. The fund's performance over time reflects stability, but may not always lead in total returns among peers focused purely on maximizing current income.

Comparison with Other Dividend ETFs

When assessing the best dividend ETF, multiple factors such as yield, total return, sector allocation, and fees become important. Some ETFs are structured to prioritize high current income, while others balance income with capital growth. For example, funds focused on Canadian equities may include dividend-rich firms such as Enbridge Inc. (TSX:ENB), Bank of Nova Scotia (TSX:BNS), and Canadian Imperial Bank of Commerce (TSX:CM), which often feature prominently in high-yield portfolios.

In contrast, CGDV’s selection criteria lean toward dividend sustainability and business resilience, even if the near-term yield is comparatively lower. This positions the fund differently than high-yield strategies that may include more volatile or cyclical dividend payers.

Furthermore, certain ETFs with a focus on Canadian markets or cross-listed securities on the TSX may offer diversified exposure to sectors like utilities, telecommunications, and energy. These sectors typically deliver higher dividend yields and lower earnings volatility.

For individuals or institutions comparing the CGDV to regional or sector-specific ETFs, factors such as withholding tax implications, dividend frequency, and geographic exposure may also influence decision-making.

To evaluate options, the best dividend ETF for income generation often depends on specific yield expectations, expense considerations, and long-term objectives, especially in a diversified equity income strategy.

Expense Ratio and Fee Considerations

CGDV’s expense ratio, while modest in absolute terms, exceeds that of many passive funds in the same category. The higher cost is linked to its active management strategy, which involves selective screening of companies based on multiple financial metrics, not solely dividend history.

Compared to low-cost passive ETFs that track dividend indexes, such as the S&P 500 Dividend Aristocrats Index or the Dow Jones U.S. Select Dividend Index, the CGDV’s fee structure reflects its commitment to deeper fundamental assessment.

Expense ratios can play a significant role in reducing total returns over extended periods, especially when compounded annually. Therefore, while the fund may offer portfolio quality and risk-adjusted stability, its higher management fees can influence overall performance for income-focused mandates.

Geographical Diversification and Strategy

Although largely composed of U.S.-listed equities, CGDV’s mandate permits selective inclusion of non-U.S. companies. This strategy enables exposure to global firms with strong dividend credentials while maintaining a core focus on U.S. markets. Canadian equities, which often feature high dividend-paying names in banking, utilities, and energy, are generally not part of CGDV’s primary allocation, though exposure through ADRs or multinational operations may indirectly occur.

The ETF’s mix of large-cap dividend-paying companies with durable business models provides a foundation of reliability in periods of market turbulence. However, its yield-centric appeal may be diluted by the prioritization of growth over high current income.

Funds with higher allocations to Canadian dividend equities or sector-specific instruments may better align with strategies seeking higher monthly or quarterly distributions.