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Launched on 01/07/2014, the First Trust Rising Dividend Achievers ETF (RDVY) is a passively managed exchange traded fund designed to provide a broad exposure to the Large Cap Value segment of the US equity market.
The fund is sponsored by First Trust Advisors. It has amassed assets over $11.71 billion, making it one of the larger ETFs attempting to match the Large Cap Value segment of the US equity market.
Why Large Cap Value
Companies that fall in the large cap category tend to have a market capitalization above $10 billion. They tend to be stable companies with predictable cash flows and are usually less volatile than mid and small cap companies.
Carrying lower than average price-to-earnings and price-to-book ratios, value stocks also have lower than average sales and earnings growth rates. Looking at their long-term performance, value stocks have outperformed growth stocks in almost all markets. They are however likely to underperform growth stocks in strong bull markets.
Costs
Expense ratios are an important factor in the return of an ETF and in the long term, cheaper funds can significantly outperform their more expensive counterparts, other things remaining the same.
Annual operating expenses for this ETF are 0.49%, putting it on par with most peer products in the space.
It has a 12-month trailing dividend yield of 1.83%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
This ETF has heaviest allocation to the Financials sector--about 42% of the portfolio. Information Technology and Consumer Discretionary round out the top three.
Looking at individual holdings, D.r. Horton, Inc. (DHI) accounts for about 2.41% of total assets, followed by Mueller Industries, Inc. (MLI) and Aflac Incorporated (AFL).
The top 10 holdings account for about 22.38% of total assets under management.
Performance and Risk
RDVY seeks to match the performance of the NASDAQ US Rising Dividend Achievers Index before fees and expenses. The NASDAQ US Rising Dividend Achievers Index is designed to provide access to a diversified portfolio of companies with a history of paying dividends.
The ETF has added roughly 12.45% so far this year and was up about 23.75% in the last one year (as of 09/17/2024). In the past 52-week period, it has traded between $43.44 and $58.75.
The ETF has a beta of 1.11 and standard deviation of 19.70% for the trailing three-year period, making it a medium risk choice in the space. With about 51 holdings, it effectively diversifies company-specific risk.
Alternatives
First Trust Rising Dividend Achievers ETF holds a Zacks ETF Rank of 2 (Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, RDVY is a great option for investors seeking exposure to the Style Box - Large Cap Value segment of the market. There are other additional ETFs in the space that investors could consider as well.
The Schwab U.S. Dividend Equity ETF (SCHD) and the Vanguard Value ETF (VTV) track a similar index. While Schwab U.S. Dividend Equity ETF has $60.60 billion in assets, Vanguard Value ETF has $126.51 billion. SCHD has an expense ratio of 0.06% and VTV charges 0.04%.
Bottom-Line
Passively managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are excellent vehicles for long term investors.
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
Zacks Investment Research
Headquartered in Columbus, Georgia, Aflac Incorporated is a holding company providing management services and capital to its subsidiaries. Valued at a market cap of $61.7 billion, its main business is voluntary supplemental and life insurance offered through Aflac U.S. and Aflac Japan.
Companies worth $10 billion or more are generally described as "large-cap stocks," and Aflac fits right into that category, with its market cap exceeding this threshold, reflecting its substantial size and influence in the life insurance industry.
Aflac has a strong market presence in Japan and the U.S. and offers a diverse range of insurance products, including cancer, accident, and long-term care insurance, appealing to a wide customer base. Its strategic marketing through independent distributors and direct-to-consumer channels, especially in workplaces, has enhanced its market position.
Shares of Aflac are just marginally down from its 52-week high of $111.14, achieved on Sept. 4. They have gained 26.6% over the past three months, outperforming the broader Nasdaq Composite’s ($NASX) marginal fall over the same time frame.
In the longer term, AFL stock posted a 33.5% YTD gain compared to NASX's 17.2% returns. Besides, over the past 52 weeks, it has outperformed the index with a 44% surge, surpassing NASX's 28.3% returns.
AFL has consistently traded over the 200-day moving average since last year and above its 50-day moving average since early May, indicating a long-term bullish trend.
A combination of reduced benefits and claims, streamlined operating expenses, robust investment income, and strong premium sales growth across both segments fuels AFL's impressive market performance.
On Jul. 31, AFL shares rose marginally after the company reported Q2 earnings results that exceeded Street expectations, with an adjusted EPS of $1.83 and revenue of $5.1 billion. A new product launch, including future nursing care coverage, boosted sales at its Japanese unit by 4.5%.
Aflac’s rival, MetLife, Inc. , outperforms AFL. Shares of MetLife are up 17% on a YTD basis and 17.9% over the past 52 weeks.
Despite strong price momentum, analysts remain cautious, adopting a neutral stance on AFL's outlook. It has a consensus rating of “Hold” from the 16 analysts covering it, and the stock currently trades above the mean price target of $96.43.
On the date of publication, Kritika Sarmah did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policyhere.
Warren Buffett-led Berkshire Hathaway Inc.’s (BRK.B) portfolio hasn’t fared badly against the S&P 500’s return amid a higher interest rate environment. However, Buffett hopes for interest rate cuts like several market pundits as it would jack up the share price of two of his beloved housing stocks NVR, Inc. NVR and Lennar Corporation LEN. Here’s why –
Freddie Mac Report: U.S. Mortgage Rates Drop
According to Freddie Mac, for the week ending Sept. 12, the 30-year fixed-rate mortgage slipped to its lowest level since February 2023. The rate on the 30-year loan averaged 6.2%, down from the four-week and 52-week averages of 6.34% and 6.93%, respectively. The 30-year mortgage rate hovered around the 7% mark for most of the year, but since late July, it has begun to cool off and has fallen since then.
The 15-year fixed mortgage average rate was 5.27%, down from the four-week and 52-week averages of 5.47% and 6.21%, respectively, a positive development for aspiring homeowners, added Freddie Mac. Have a look at the chart, which shows that mortgage rates in the United States continued to soften over the past year –
Image Source: Freddie Mac
Why Are Mortgage Rates Falling?
An increase in expectations of a much-awaited interest rate cut in the Federal Reserve’s September policy meeting is pushing the yields on long-term bonds lower leading to a drop in mortgage rates.
The Fed is expected to trim interest rates as price pressures ebb toward the central bank’s 2% target. The interest rate cut would be the first one since March 2020, when the Fed slashed rates to boost economic growth derailed due to the pandemic. The interest rates have remained elevated for the past 14months, waiting for economic conditions to improve.
According to the CME FedWatch Tool, around 59% of market participants expect the Fed to trim interest rates by 50 basis points in the upcoming policy meeting. Nearly 41% of traders are pricing in a quarter-point interest rate cut.
Image Source: CME Group
Drop in Mortgage Rates to Boost 2 Warren Buffett Stocks
The steady decline in mortgage rates on interest rate cut expectations should increase new home purchases, and boost homebuilders’ bottom line. Thus, two of Warren Buffett’s homebuilders, NVR and Lennar, are expected to see an increase in their stock prices.
After giving away his stake in D.R. Horton, Inc. DHI, the Oracle of Omaha hung onto these housing stocks as they would benefit from urbanization and a strong brand value. Berkshire Hathaway has roughly $100 million of NVR shares and around $26 million of Lennar shares as of the company’s latest 13F filing, citing a CNBC article.
Key NVR Tailwinds: Increase in New Orders, Very Strong ROE
NVR’s profit margin is expected to improve as the company has witnessed an increase in new orders. In the second quarter, NVR’s new orders increased by 3% to 6,067 units from 5,905 units a year ago.
NVR has proficiently generated profits as the company’s return on equity (ROE) is 38.5%, more than the Building Products - Home Builders industry’s 18.3%. An ROE of more than 20% is usually considered very strong.
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NVR’s expected earnings growth rate for the next five years is 7.6%. Its shares have gained 33.9% so far this year.
Key LEN Tailwinds: Dynamic Pricing Model, Lower Debt
Lennar is well-positioned to gain from its dynamic pricing model, which helps the company set prices based on demand trends and ever-changing market scenarios. This, in turn, aids Lennar in improving cash flow and return on inventory.
Lennar has a debt-to-equity of 8.3%, less than the industry’s 15.4%, a tell-tale sign that the company has less debt on its balance sheet than its peers, and can operate more efficiently in the long run.
LEN’s expected earnings growth rate for the next five years is 7.8%. Its shares have gained 24.7% year to date.
Fear Not, If the Fed Doesn’t Cut Rates
In the worst-cum-worst situation, if the Fed doesn’t cut interest rates, shares of NVR and Lennar would still scale upward, thanks to the presidential election in November. Kamala Harris, a Democratic nominee wants to boost construction activity and provide financial assistance to first-time home buyers.
Moreover, millennials are about to settle into a family life leading to increased demand for houses, a blessing for NVR and Lennar. Both stocks have a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Zacks Investment Research
Lennar Corporation LEN is slated to report third-quarter fiscal 2024 results (ended Aug. 31) after the closing bell on Sept. 19.
In the last reported quarter, the company’s earnings and total revenues topped the Zacks Consensus Estimate by 5.6% and 2.2%, respectively. It is to be noted that this Miami-based homebuilder surpassed earnings expectations in the trailing 21 quarters.
On a year-over-year basis, fiscal second-quarter earnings and revenues increased 15% and 9%, respectively.
Lennar Corporation Price and EPS Surprise
Lennar Corporation price-eps-surprise | Lennar Corporation Quote
How Are Estimates Placed for LEN?
For the quarter to be reported, the Zacks Consensus Estimate for earnings per share has declined to $3.62 from $3.63 over the past 60 days. The estimated figure indicates a decrease of 7.4% from the $3.91 reported in the year-ago quarter.
The consensus mark for revenues is pegged at $9.29 billion, suggesting 6.4% growth from the year-ago reported figure of $8.73 billion.
What the Zacks Model Unveils for LEN
Our proven model does not predict an earnings beat for Lennar this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is not the case here, as you will see below.
Earnings ESP: The company has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Currently, Lennar carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors to Shape LEN’s Q3 Results
Lennar’s fiscal third-quarter home sales are expected to have increased from the year-ago level, given higher deliveries. The company has been gaining from its solid operating strategy of focusing on production and sales pace over price, land light strategy and favorable pricing and product mix.
Our model predicts home sales to increase 5.4% year over year to $8.73 billion in the quarter. Homebuilding revenues are expected to be $8.76 billion, up 5.3% year over year.
On the fiscal second-quarter earnings call, LEN highlighted that it expects home deliveries of 20,500-21,000 units with ASP between $420,000 and $425,000. Meanwhile, our estimate for deliveries for the to-be-reported quarter is currently pegged at 20,570 homes, indicating a rise of 10.8% from 18,559 units a year ago. We expect the ASP of the delivered units to be $424,410 indicating a decline from $448,000 a year ago, reflecting discounting and a smaller square foot sales mix versus last year.
Lennar expects new orders in the range of 20,500-21,000, pointing to growth from 19,666 reported in third-quarter fiscal 2023. Our estimate for new orders is currently pegged at 20,795 homes, reflecting 5.7% growth from a year ago. Low-existing homes for sale have been driving future demand for new homes in the market. Also, digital marketing platforms and a dynamic pricing model bode well.
Our model predicts a backlog (units and values) of 18,098 homes or $8.51 billion compared with the year-ago quarter’s figures of 21,321 units or $9.85 billion.
That said, higher land, labor and raw material costs are expected to have put pressure on fiscal third-quarter margins. The company expects the homebuilding gross margin to be 23%, pointing to a decline from 24.4% a year ago.
Meanwhile, Lennar expects homebuilding selling, general and administrative (SG&A) expenses, as a percentage of home sales, to be in the range of 7.3-7.5%. Our model predicts homebuilding SG&A to be 7.5% in the quarter compared with the year-ago quarter’s figure of 7%. The increase is likely to be due to a greater reliance on brokers driven by current market conditions, along with higher digital marketing, advertising and insurance costs aimed at boosting direct sales.
Meanwhile, Financial Services operating earnings are expected to be in the range of $135-$140 million in the fiscal third quarter. Our model predicts Financial Services operating earnings to be $139.9 million in the quarter compared with the year-ago quarter’s figure of $149 million.
Lennar’s Price Performance & Valuation
LEN’s stock has exhibited an upward movement in the year-to-date (YTD) period. The stock has gained 24.7%, underperforming the Zacks Building Products - Home Builders industry’s rise of 28% in the same time frame.
The company has also underperformed its peer companies like D.R Horton (DHI, up 28.2% YTD), NVR, Inc. (NVR, up 33.9%) and PulteGroup, Inc. (PHM, up 35.2%).
YTD Price Performance of LEN Stock
LEN stock is trading slightly at a premium compared with the industry and slightly higher than its median, reflecting a stretched valuation. For investors focused on fundamentals, this could be a point of caution.
How to Play Lennar Stock?
Lennar’s ability to adapt to fluctuating market conditions, driven by robust demand and operational efficiencies, is reflected in the company’s performance in the first two quarters of 2024. While challenges around affordability and market volatility persist, Lennar’s strategic focus on an asset-light model and consistent production should position it for continued success throughout 2024 and beyond. Lennar's strategy involves shifting to an asset-light, land-light model through just-in-time homesite delivery and off-balance-sheet land options. This reduces risk and improves liquidity. Also, the planned spin-off of its land assets into a new public company could further strengthen its financial position.
Despite fluctuations in rates, ranging from 6.75% to 7.3%, Lennar has been able to adapt by offering incentives such as interest rate buy-downs and price reductions to mitigate affordability concerns. The company has focused on an "even-flow" manufacturing model, emphasizing consistent production and cost reductions, enabling better cash flow and improved margins. The company continued to maintain a low debt-to-capital ratio of 7.7% in the fiscal second-quarter end, the lowest in its history.
Low housing inventory and favorable demographic trends are expected to drive growth in the homebuilding market. Again, the anticipated rate cut this month could provide an additional boost to the housing market, further enhancing the outlook for homebuilders like Lennar, along with peers such as D.R. Horton, PulteGroup, and NVR.
However, the unpredictability of the magnitude of interest rate cuts and inflation continues to moderate the housing market’s strength, requiring Lennar to maintain flexibility in its pricing and production strategies. The spin-off of land assets and other strategic moves are still in progress, which adds complexity and temporary cost pressures.
Given these headwinds, including the company's underperformance compared to its peers, high valuation, recent downward estimate revisions, and macroeconomic risks related to the high-interest rate environment, cautious investors can wait for more stability in Lennar’s performance and market conditions before considering an investment in this stock.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
Zacks Investment Research
Investors interested in Finance stocks should always be looking to find the best-performing companies in the group. Has Aflac (AFL) been one of those stocks this year? Let's take a closer look at the stock's year-to-date performance to find out.
Aflac is a member of our Finance group, which includes 859 different companies and currently sits at #3 in the Zacks Sector Rank. The Zacks Sector Rank considers 16 different groups, measuring the average Zacks Rank of the individual stocks within the sector to gauge the strength of each group.
The Zacks Rank is a proven model that highlights a variety of stocks with the right characteristics to outperform the market over the next one to three months. The system emphasizes earnings estimate revisions and favors companies with improving earnings outlooks. Aflac is currently sporting a Zacks Rank of #2 (Buy).
Within the past quarter, the Zacks Consensus Estimate for AFL's full-year earnings has moved 4.6% higher. This signals that analyst sentiment is improving and the stock's earnings outlook is more positive.
According to our latest data, AFL has moved about 31.6% on a year-to-date basis. Meanwhile, the Finance sector has returned an average of 15.4% on a year-to-date basis. This means that Aflac is performing better than its sector in terms of year-to-date returns.
Another Finance stock, which has outperformed the sector so far this year, is Arthur J. Gallagher (AJG). The stock has returned 32.2% year-to-date.
For Arthur J. Gallagher, the consensus EPS estimate for the current year has increased 0.9% over the past three months. The stock currently has a Zacks Rank #2 (Buy).
Looking more specifically, Aflac belongs to the Insurance - Accident and Health industry, which includes 5 individual stocks and currently sits at #58 in the Zacks Industry Rank. Stocks in this group have gained about 29.7% so far this year, so AFL is performing better this group in terms of year-to-date returns.
On the other hand, Arthur J. Gallagher belongs to the Insurance - Brokerage industry. This 9-stock industry is currently ranked #9. The industry has moved +35.9% year to date.
Investors with an interest in Finance stocks should continue to track Aflac and Arthur J. Gallagher. These stocks will be looking to continue their solid performance.
Zacks Investment Research
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