Tech Dividend Fund Could Add More Apple to Its Basket

By Todd Shriber, ETF Trends

The First Trust NASDAQ Technology Dividend Index Fund (TDIV) is up nearly 19% in the past year and has raked in more than $186 million of its $478.3 million in assets under management since the start of 2014.

So it might be fair to say TDIV does not need much more help gaining fans, but there is nothing like some assistance from a widely-followed company such as Apple (AAPL) to shine a brighter light on TDIV.

Shares of the iPad maker surged 7.6% during Wednesday’s after-hours session after the company, among other announcements, said it will boost its quarterly dividend by 8% to $3.29 per share. At the start of this year, it was reported Apple would need to raise its dividend by at least 8% to become the largest U.S. dividend payer. The company has done that and the move could affect the stock’s position in TDIV.

TDIV tracks the NASDAQ Technology Dividend Index, which is rebalanced quarterly and “employs a modified dividend value weighting methodology. At each evaluation, the index securities are classified as technology or telecommunications based on their ICB classification. The technology securities are given a collective weight of 80% and the telecommunications securities are given a collective weight of 20% in the index. The index weighting methodology includes caps to prevent high concentrations among larger stocks,” according to First Trust.

Translation: TDIV’s constituent companies are weighted by total dividends paid over the past year, giving the ETF’s shareholders ample exposure to the largest dividend payers in the tech sector. That means after the ETF’s next rebalance, Apple could move up a spot or two in the lineup.

Apple’s ascent in any dividend ETF that uses a methodology based on paid cash dividends could come down to how many shares the company has repurchased by the time the new dividend takes effect and when those ETFs rebalance. The company said Wednesday it is aiming to repurchase $90 billion of its own stock by the end of 2015, up from its original target of $60 billion.

At the close of U.S. markets Wednesday, Apple was TDIV’s fifth-largest holding at a weight of 7.81%, trailing Dow components, Intel (INTC), Cisco (CSCO), Microsoft (MSFT) and IBM (IBM).

The tech is one of largest contributors to S&P 500 dividend growth over the past few years and TDIV is among the ETFs that have capitalized on that trend. With Wednesday’s announcement, Apple’s dividend has increased 24% in two years. Cisco’s payout has tripled in three years. Microsoft’s dividend has more than doubled in less than four years.

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First Trust NASDAQ Technology Dividend Index Fund (TDIV) is a component of the D2 Capital Management Multi-Asset Income Portfolio.  Current dividend yield of the portfolio is 5.43% (as of 23 April 2014).

Disclosure:  I own the D2 Capital Management Multi-Asset Income Portfolio

The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.