In the past few years, interest rates in the U.S. and other
developed countries have been at historic lows. In this scenario,
investors seeking current income have eventually shifted their
focus to either dividend paying stocks, or high yield products in
any number of other categories like MLPs or BDCs (
11 Great Dividend ETFs
Unfortunately, this trend looks likely to continue as we head
into the end of the year, as Bernanke appears poised to keep rates
at depressed levels for some time. If anything, investors could see
even lower rates at the end closes out thanks to widespread
speculation over more QE.
Furthermore, investors should also note that high dividend
paying stocks play a defensive role in a portfolio and can help to
reduce volatility in otherwise shaky times. This can be especially
true when investors look at high dividend paying ETFs which have
the benefits of high yields but spread risk around a variety of
sectors and firms.
For these reasons, income investors could be well served by
looking at some of these specialized ETFs for their own portfolios.
This technique will undoubtedly help to boost current income levels
while at the same time helping to spread portfolios around more
Three Excellent Dividend ETFs for Safety and
In this context, although U.S. dividend ETFs have been in the
limelight among income starved investors over the last couple of
years, many also want to consider funds which focus on securities
outside the U.S. and onto international markets instead. Many
securities in this corner of the market offer up payouts that not
only crush 10 year treasury rates, but also easily outpace S&P
500 yields as well.
In this way, investors can have the added benefit of gaining
valuable international exposure which is something that most are
lacking in their portfolios at this time. Furthermore, the added
yield is likely to be a nice touch, which should help to smooth
overall volatility and allow investors to attack international
markets in an arguably safer way:
With this backdrop and an increased focus on yield by many
investors, we have highlighted four funds below which have payout
yields of more than 5%, and provide exposure to equities outside
the U.S. This may give investors new ideas for ways to achieving
higher levels of current income without too much of a focus on the
domestic market, taking advantage of the economies outside America
for higher yield payouts:
IQ Australia Small Cap ETF (
For high yield securities in Australia, investors can certainly
look to KROO. The product tracks the IQ Australia Small Cap Index.
The Index focuses on companies that make up the smallest 15% of the
market cap in the nation, giving the fund an entirely different
focus than large cap products in the nation. This resulted in a
portfolio of 104 securities with expense ratio of 69 basis points a
year in fees.
The fund has an impressive dividend yield of 8.56% making it a
top choice for yield focused investors. Still, KROO doesn't just
invest in 104 of the highest yielders, but instead is just zeroed
in on high yield sectors which traditionally offer outsized payouts
This ETF assigns 27.9% of its asset base to basic materials
stocks suggesting a tilt towards the commodity-intensive segment of
the Australian economy. KROO looks to be a good choice for
investors seeking for an exposure to the resource-dominant
The fund appears to be spread out among companies, as investment
in the top 10 holdings stands at 23.6%. Seek Ltd, Bank of
Queensland Ltd, and Ansell Ltd take the top three positions in the
fund with asset investment of 2.92%, 2.77% and 2.58%, respectively
Australia ETFs: a Developed Market Play on Asian
SPDR S&P International Dividend ETF (
For a global exposure in the ETF space, investors can invest in
State Street's DWX, which was launched in February 2008. The fund
tracks the price and performance of the S&P International
Dividend Opportunities Index, thereby giving investors an option to
target dividend paying stocks on a global basis. With asset under
management of $905.73 million, this fund provides exposure to the
stocks globally that provide high dividend yields.
The fund has an attractive dividend yield of 7.59% thereby
providing a good level of current income to investors in this
uncertain economic environment. DWX has an edge in expenses as it
charges an expense ratio of 45 basis points, the lowest on the
DWX provides exposure to 125 high dividend yield international
stocks while around 30% of which make up the top 10 holdings. Among
individual holdings, Aviva and Westpac Banking Corp have been
weighted equally (3.25%) in top 10 holdings while the third
preference was allocated to Seadrill Ltd with an asset investment
Among sector holdings it has been noticed that dividend focused
ETFs are generally inclined towards telecommunication, financials
and utility, and DWX is not an exception. It collectively assigns
60.4% of its asset base to these three sectors (
Utility ETFs: Slumping Sector in Rebounding
DWX has more than 70% correlation with the developed countries
and 15% with the emerging countries. Australia and Germany combine
to comprise about 20% of the exposure.
STOXX European Select Dividend Index Fund (
For investors looking to tap into the European market, they can
invest in FDD which tracks the price and performance of the STOXX
Europe Select Dividend 30 Index, before fees and expenses. The
index is a dividend-weighted benchmark of 30 stocks selected from
the Dow Jones STOXX 600 Index, which includes high-dividend
yielding companies across 18 European countries (
Three Resilient European ETFs Still Going
It looks to focus on companies that have a current year
dividend-per-share greater than the trailing five-year annual
average with payout ratios less than 60%. By doing this, investors
could gain exposure to a group of companies that are increasing
their payouts but still have a nice buffer of safety.
The fund has a dividend yield of 6.76%, a good level considering
the focus of the fund. The fund manages an asset base of $12.2
million which it invests in a basket of 31 dividend paying stocks.
Of this, 44.9% is invested in the top 10 holdings.
Among individual companies, Royal & Sun Alliance Insurance
Group Plc takes the top spot with a share of 5.48% while among
others the fund does not invest more than 5.06%.
From a country point of view, approximately 40% of the stocks
are from the United Kingdom, 12% from France and 11% from Germany.
The rest are based in Switzerland, the Netherlands, Belgium,
Bermuda, Spain, Italy and Sweden.
Like many other dividend focused funds, FDD also has a tilt
towards telecommunication, Financials, and Utilities with total
asset investment of approximately 80%. In order to generate current
income through FDD, investors need to pay an expense ratio of 60
basis points annually (
Can You Beat These High Dividend ETFs
Dow Jones International Select Dividend Index Fund (
For another global fund with a high yield, investors also have
iShares' IDV to consider. The product tracks the Dow Jones EPAC
Select Dividend Index, a benchmark that consists of 101 stocks that
have provided relatively in one hundred of the high dividend yields
on a consistent basis over time. The fund produces a yield of
The product's assets are pretty well spread out with large caps
making 63.9% of the asset base while mid and small caps accounting
for 35.3% of the portfolio. Among individual holdings also, the
fund does not appear to be concentrated in the top 10 as just 28.9%
of the asset base is invested.
For sectors, telecom accounts for 21.5% of the total, while
consumer staples and utility stocks round out the top three. Region
exposure is tilted towards Europe in the top spot while Australia
gets the second slot overall.
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SPDR-SP INT DIV (DWX): ETF Research Reports
FT-STX EURO SEL (FDD): ETF Research Reports
ISHARS-DJ INTL (IDV): ETF Research Reports
IQ-AUSTRALIA SC (KROO): ETF Research Reports
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