Reality Shares launch two new dividend growth ETFs

Jan 25th, 2016 | By | Category: Equities

Reality Shares, a specialist index provider and exchange-traded fund issuer, has announced the launch of two new ETFs on the BATS Exchange. The Reality Shares DIVCON Dividend Defender ETF (DFND) and the Reality Shares DIVCON Dividend Guard ETF (GARD) both leverage the firm’s DIVCON dividend health rating methodology to provide tactical long or short exposure to companies based on their perceived likelihood of increasing or decreasing their dividend levels.

Reality Shares deploys DIVCON model through launch of two new dividend growth ETFs

Eric Ervin, CEO of Reality Shares Advisors.

“We believe dividend health is an effective gauge of companies’ longer-term prospects, and our research supports our conviction that dividend-growing companies have historically outperformed the market while dividend cutters have produced negative returns,” said Eric Ervin, CEO of Reality Shares. “Based on that principle, the DIVCON Dividend Defender and DIVCON Dividend Guard ETFs offer investors who are seeking to mitigate risk with hedged strategies that invest in the companies our DIVCON methodology indicates are most likely to grow their dividends while shorting the ones most likely to cut.”

The stock selection process focuses on seven key indicators of company quality that have been proven to be significantly correlated with dividend growth. These include analyst consensus of expected dividend levels, coverage ratios (free cash flow/dividend cash flow), EPS growth over the previous 12 months, the firm’s record of dividend changes, share repurchases, Bloomberg dividend health scores, and Altman Z-Scores (a measure of the probability of a firm going bankrupt).

The methodology uses a weighted average of the above seven indicators to generate a score for each firm between 1-100. The index thereby assigns each company a DIVCON rating between 1-5 where higher ratings indicate a greater probability of a future dividend increase.

Both ETFs use the DIVCON methodology to establish long positions in firms perceived to be on the cusp of dividend increases (possessing a DIVCON rating of 5), while shorting those perceived at risk of dividend cuts (possessing a DIVCON rating of 1). The Defender ETF specifies a 75% long investment and 25% short investment. The Guard ETF enjoys greater flexibility and attempts to measure the strength of the entire market through the application of the Reality Shares’ Guard Indicator, a proprietary quantitative gauge of market strength. The fund may employ a 100% long position if the indicator strongly signals a bull market or may shift to a 50% short allocation in the stocks of firms with DIVCON ratings of 1. In this way, the ETF may better protect wealth against market downturns. Both funds carry net expense ratios of 0.95%.

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