What is DVND? (Pros, Cons, and Strategies)

Investors seeking stable and growing income streams for retirement often turn to dividend-focused ETFs. One such ETF that has garnered attention recently is DVND, the Touchstone Dividend Select ETF. Whether you're preparing for retirement or looking to achieve financial independence earlier, DVND offers compelling features worth considering. In this blog post, we'll delve into what DVND is, along with its benefits, drawbacks, and potential investment strategies.

What is DVND?

DVND is an ETF designed to provide exposure to dividend-paying companies in the U.S. stock market. DVND stands for Touchstone Dividend Select ETF, which aims to offer investors a balanced approach by focusing on both yield and dividend growth.

DVND seeks to replicate the performance of the Dividend Select Index, which comprises companies that not only pay dividends but have also demonstrated a consistent capacity to grow their dividends over time.

Unlike traditional dividend ETFs that may focus solely on high-yield stocks, DVND takes a more nuanced approach by considering companies with histories of stable and increasing dividends. This strategic angle has made DVND an appealing option for long-term retirement planning.

Key Features of DVND

• Companies that have paid dividends for at least 5 consecutive years
• Companies with a market cap of at least $1 billion
• Companies with an average daily trading volume of at least $1 million over three months

DVND selects its constituents based on fundamental criteria, including earnings stability, dividend growth, and payout ratios. This yields a diversified portfolio of stocks focused on financial health and dividend reliability.

DVND Composition

DVND comprises well-known dividend-paying companies such as Johnson & Johnson (JNJ), Procter & Gamble (PG), Coca-Cola (KO), and PepsiCo (PEP). The portfolio is well-diversified across sectors, reducing exposure to any single industry and hence providing a balanced investment option. This setup makes DVND particularly suitable for risk-averse investors looking for stable yet growing dividend income.

Pros of DVND

Reliable Dividend Growth

DVND's commitment to including companies with proven track records in increasing dividends makes it a reliable choice for long-term investors. Historical data indicates consistent dividend growth, even during economic downturns, providing a sense of security that is crucial for retirement planning.

Balanced Portfolio

DVND offers a balanced approach with its diversified portfolio. By investing in companies from various sectors, it mitigates the risks associated with any single industry's downturns. This diversified investment strategy enhances the ETF's stability and makes it more resilient against market fluctuations.

Low Expense Ratio

Another significant benefit is DVND's expense ratio, which is relatively low at 0.10% per year. Given that expense ratios can significantly impact returns over time, a low fee structure is especially beneficial for long-term investors looking to maximize their net returns.

Cons of DVND

Moderate Dividend Yield

DVND's dividend yield falls in the moderate range, typically between 2% and 3%. While this makes it more stable, it may not be appealing to those seeking higher immediate returns. For example, high-yield ETFs like QYLD or JEPI often show higher yields surpassing 7%, albeit with more volatility.

Long-Term Commitment Required

DVND is not well-suited for short-term investors. To fully realize the benefits accruing from dividend growth and reinvestment, a long-term horizon of at least 5-10 years is recommended. Investors looking for quick gains may find this ETF less appealing and should consider other options for short-term profit.

DVND Investment Strategies

DVND's strategy focuses on dividend growth and stability rather than short-term capital appreciation. This makes it ideal for investors who are building a long-term portfolio for retirement or other long-term financial goals.

Long-term Investment Strategy

Investing in DVND requires a commitment of at least 5-10 years to fully benefit from its steady dividend growth and balanced portfolio strategy. While the initial yield might be moderate, the consistent growth of dividends can provide substantial income over the long term.

Because DVND invests in companies with robust financial health and consistent dividend increases, it's well-suited for those planning for retirement or long-term financial independence.

Dividend Reinvestment Plan

A powerful strategy for maximizing returns with DVND is to reinvest the dividends. Over time, this practice can significantly enhance portfolio growth through the compounding effect. Regular contributions to a DVND-based portfolio, coupled with dividend reinvestment, can lead to exponential asset growth, making it an excellent choice for retirement planning.

Diversification Strategy

While DVND itself is a diversified ETF, it's still wise to incorporate it as part of a broader investment strategy. Combining DVND with other asset classes such as bonds, international stocks, or real estate can offer additional balance. This approach can help mitigate risks even further and provide a more well-rounded investment portfolio.

Conclusion

DVND, the Touchstone Dividend Select ETF, offers a balanced and reliable approach to dividend investing, particularly appealing for long-term investors aiming for financial stability and growth. While it may not suit short-term investors seeking high immediate yields, its low expense ratio, reliable dividend growth, and balanced portfolio make it an excellent option for long-term investment strategies. By combining DVND with other asset classes and employing dividend reinvestment, investors can build a robust retirement portfolio that promises consistent and growing income over time.