In the wildly popular world of dividend ETFs, HDV has gone from upstart to reigning supreme.

In November, I wrote about an up-and-coming high-dividend ETF that was a potential game-changer. At the time, HDV was a $500 million fund showing impressive monthly inflows.

Today HDV is a $2 billion fund, and it’s time to update its status from “game-changer” to “king” of U.S. dividend ETFs.

There are a number of reasons I love the iShares High Dividend Equity Fund (NYSEArca: HDV).

Sure, the fund returned close to 25 percent over the past year, beating all its peers. But aside from its performance, HDV continues to look promising under various market scenarios.

First and foremost, HDV—which tracks the Morningstar Dividend Yield Focus Index—is heavily tilted toward solid mega-caps, which helps the fund weather extreme volatility well.

Here at IndexUniverse Analytics, we use the Dow Jones U.S. Select Dividend Index as the benchmark for our U.S. high-dividend yield segment, which includes heavyweights like the $10.9 billion iShares Dow Jones Select Dividend Index Fund (NYSEArca: DVY), the $11.6 billion Vanguard Dividend Appreciation ETF (NYSEArca: VIG) and the $9.3 billion SPDR S&P Dividend ETF (NYSEArca: SDY).

When measuring volatility, HDV carries a beta of 0.76 against our neutral benchmark, the lowest in the segment. This implies lower volatility than its peers, yet HDV outperformed them all on the upside—which is pretty impressive.

Looking at sector tilts, almost 30 percent of HDV’s 75 holdings are weighted in big pharma, which stands to benefit from Obamacare, officially known as the Patient Protection and Affordable Care Act.

But aside from being heavy in big pharma cash cows like Pfizer, J&J and Merck, HDV is also heavy in utilities and telecoms.

Yield Misconception

Recently, I’m hearing more chatter about the craze for dividend ETFs being overplayed, and concerns about yields losing their attractiveness as the funds’ share prices increase.

While there’s some truth to that argument, yields in ETFs are also affected by fund flows, so investors shouldn’t be thrown off by HDV’s comparatively “lower” trailing 12-month yield of 2.88 percent.

Ironically, investors might actually see HDV’s yield rise, or normalize, more toward its indicated, or “current” yield of 3.58 percent, as flows into the fund start to normalize.

The reason HDV is sporting a lower trailing 12-month yield is because during a period of enormous inflows—which HDV has definitely had over the past year—as ETF shares get created, dividend payments from the underlying holdings need to be distributed to a slew of additional shares at quarter-end, creating a somewhat-dilutive effect.

While inflows are still strong with HDV, from the perspective of percent of total assets, they’ve settled down from last year. That means that the yield should start to move up closer to its indicated yield.

The following table details HDV’s fund flows in 2012.

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