With a dividend yield of 1.74%, the Capital Group Dividend Value ETF (NYSEARCA:CGDV) may not seem like the type of ETF that would be of interest to dividend investors at first glance. But while the yield may not stand out, there is a lot to like about this relatively new, actively-managed ETF from Capital Group that has outperformed the market recently. Here’s why CGDV is an interesting option for dividend investors and generalist investors alike.
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What is CGDV’s Strategy?
According to fund sponsor Capital Group, CGDV’s strategy is to “produce income exceeding the average yield on U.S. stocks generally and to provide an opportunity for growth of principal consistent with sound common stock investing.” CGDV invests in “dividend-paying stocks of larger established U.S. companies.” The fund can also invest up to 10% of its assets in larger international companies.
While this is a fine strategy, it admittedly sounds pretty vanilla. What makes CGDV more interesting is the fact that the fund is actively managed by a seasoned team of veteran portfolio managers and the fact that it has started its life in the public markets auspiciously both in terms of performance and the larger level of assets under management it has gathered in a short time period.
This Isn’t Capital Group’s First Rodeo
While CGCV is new to the public markets, launching in early 2022, this isn’t Capital Group’s first rodeo. Capital Group was founded all the way back in 1931 and is perhaps best known for running the American Funds family of mutual funds since the 1930s.
Within the investment community, Capital Group is known for its multi-manager structure, which it believes not only mitigates risks but also benefits each fund by bringing in a variety of diverse perspectives. These managers then invest in their highest-conviction ideas.
CGDV follows this approach. The fund is run by five experienced portfolio managers, each of whom has covered different industries during their careers and developed different areas of expertise. These managers each have at least 22 years of experience at Capital Group, and the longest-tenured manager, Jim Lovelace, has been at the firm for 41 years.
CGDV’s Holdings
What does an actively-managed portfolio from a team of seasoned industry veterans with different areas of expertise look like?
In total, CGDV owns 52 stocks, and its top 10 holdings make up 42.3% of the fund. Below, you’ll find an overview of CGDV’s top 10 holdings.
Top holding Broadcom is indicative of the types of stocks that CGDV invests in. While Broadcom’s dividend yield of 2.2% isn’t going to knock anyone’s socks off, Broadcom has increased its dividend payout for 12 straight years, and the stock has doubled since 2021, leading to great returns for its investors. By investing in these types of stocks, CGDV has the potential to increase its own dividend payout over time.
Other well-known, high-quality dividend-paying stocks within CGDV’s top holdings include the likes of Microsoft, Carrier Global, Raytheon Technologies, and Abbott Laboratories. Overall, this is a carefully selected and diverse group of blue-chip stocks.
Strong Performance Out of the Gate
As mentioned above, CGDV hasn’t been around for a long time, but it has performed well thus far. The fund has returned 32.0% over the past year. This emphatic gain over the past year far outpaces the S&P 500’s gain of 21.6% over the same time frame, which is even more impressive given the fact that the past year has been a good one for the market and for growth stocks in particular.
Obviously, CGDV hasn’t been around long enough yet to say that it beats the market on a consistent basis, but the early results have certainly been eye-catching.
Also of note, CGDV has quickly garnered a significant total of assets under management (AUM) in a relatively short amount of time. CGDV has reached an AUM of $3.9 billion, gaining relevance much faster than the hundreds of ETFs that launch each year and fail to ever reach critical mass. This fact isn’t directly tied to performance and doesn’t mean this is a great ETF in and of itself, but it seems that investors recognize CGDV’s potential and are moving capital into the ETF.
Expense Ratio
Another positive about CGCV is that its expense ratio is reasonable. Granted, an expense ratio of 0.33% is more expensive than what you’ll find from many broad market index funds. However, for an actively-managed ETF, this isn’t a terrible price, and plenty of ETFs, whether actively or passively managed, charge higher fees than this.
This expense ratio means that an investor in the fund will pay $33 in fees on a $10,000 investment over the course of a year. Assuming that the expense ratio remains consistent and that the fund returns 5% per year going forward, this same investor would pay $418 in fees over the course of a 10-year investment.
Is CGDV Stock a Buy, According to Analysts?
Turning to Wall Street, CGDV earns a Moderate Buy consensus rating based on 44 Buys, eight Holds, and zero Sell ratings assigned in the past three months. The average CGDV stock price target of $31.30 implies 17.6% upside potential.
A Smart Choice
While the analyst community is a fan of CGDV, so is TipRanks’ Smart Score system, which gives CGDV an Outperform-equivalent ETF Smart Score of 8 out of 10. The Smart Score is a proprietary quantitative stock scoring system created by TipRanks. It gives stocks and ETFs a score from 1 to 10 based on eight market key factors. A score of 8 or above is equivalent to an Outperform rating.
Conclusion
In conclusion, CGDV’s dividend yield of 1.74% isn’t likely to knock anyone’s socks off. However, the fund’s nascent performance so far, albeit over a short time frame, makes it worthy of investor consideration. I’m also intrigued by CGDV’s reasonable price for an actively managed ETF and the fact that it is run by a seasoned and diverse team of portfolio managers. While CGDV still needs to prove itself by performing well over time, I am impressed by what I have seen so far and am adding it to the top of my watchlist.
