An ominous tone set by the fiscal cliff that has grown louder
since Election Day is the primary excuse behind the recent
declines endured by dividend
. Popular, multi-sector dividend ETFs focused on U.S. equities
have been hammered in the past week.
Since November 7, the Vanguard Dividend Appreciation ETF
), the SPDR S&P Dividend ETF (NYSE:
) and the iShares High Dividend Equity Fund (NYSE:
) have lost an average of 4.2 percent. Things are worse for some
dividend sectors funds
, such as those tracking telecommunications and utilities names.
As one example, the Utilities Select Sector SPDR (NYSE:
) is off six percent since November 7.
Despite the presentation of
that doomsday will not arrive if the dividend tax rate rises,
investors have been punishing U.S. dividend-paying stocks, the
aforementioned ETFs and related funds. Although payout ratios at
U.S. firms are historically low and high-yielding stocks rose in
the decade following last dividend tax increase in 1993,
investors are no longer convinced that domestic dividend names
are worth the risk.
International dividend stocks and ETFs might just be the
elixir income investors are looking for to deal with the fiscal
cliff. Because "international investors are not affected by
changes in U.S. tax rates and dividend yields are still
attractive in the current environment, we do not anticipate a
broad-based flight from global dividend-paying companies stemming
from the U.S. Fiscal Cliff,"
said PIMCO in a research note
Here is a sampling of some of the globally-focused dividend
ETFs investors will want to have a look if the fiscal cliff
morphs from bad dream to harsh reality.
iShares Dow Jones International Select Dividend Index
The iShares Dow Jones International Select Dividend Index Fund is
not a perfect "avoid the fiscal cliff" play. A 22 percent
allocation to the financial services sector and a beta of almost
1.5. However, IDV is sufficiently allocated to conservative
sectors such as consumer staples, utilities and
telecommunications. That trio represents over 38 percent of the
Remember, it is ETFs that are heavy on U.S.-based utilities,
and to a slightly less extent telecom names, that are most
vulnerable to the fiscal cliff. PIMCO paints the picture: "For
example, a Latin American utility with shareholders from Europe,
Asia and the Middle East unaffected by the possible U.S. tax
change is unlikely to see less demand for its stock."
Translation: The fiscal cliff may prompt a U.S.-based utility
to become suddenly stingy with its dividend. That does not mean a
European or Latin American utility will do the same.
WisdomTree International Dividend ex-Financials Fund
Not only is the the WisdomTree International Dividend
ex-Financials Fund an ex-financials ETF, it is also an ex-U.S.
ETF. DOO's 14.4 percent allocation to utilities names is not a
red flag, because
international utilities trade at much lower
than their U.S. counterparts.
DOO's 30-day SEC yield of 4.77 percent is certainly alluring,
but the primary risk to this ETF is its large weight (over 45
percent) to eurozone nations. Still, select European equities are
attractively valued and many of DOO's Europe-based constituents
derive sizable portions of their revenue from other parts of the
WisdomTree Emerging Markets Equity Income Fund (NYSE:
Emerging markets firms are upping their dividend game this year
with the expect payouts from the 300 largest non-bank stocks in
the MSCI Emerging Markets Index
expected to rise to $52.2 billion
$48.9 billion last year.
High profitability and low corporate debt bolster the case for
emerging markets dividend payers and ETFs such as DEM. So does
the fact U.S. dividend tax policy likely will not factor
prominently in the decision of a Polish or Thai company's
There is another reason DEM could work as a fiscal cliff play:
State-owned enterprises. As in some state-owned firms are already
decent dividend payers, but since their largest shareholders (the
home government) often want more money, there is the potential
for dividend growth.
Along those lines, investors should also evaluate the EGShares
Low Volatility Emerging Markets Dividend ETF (NYSE:
). Both DEM and HILO offer ample exposure to various
Global X SuperDividend ETF (NYSE:
The Global X SuperDividend ETF does devote about 29.3 percent of
its weight to U.S. equities, but many of those are real estate
investment trusts that are obligated by law to payout a certain
percentage of their profits in the form of dividends. That might
not be enough to assuage some investors that SDIV is immune from
the fiscal cliff.
Still, SDIV features plenty of positive traits and those
traits extend beyond a 7.72 30-day SEC yield and a monthly
dividend. SDIV is
diverse and less volatile than other
international dividend funds
. With a price-to-earnings ratio of less than 12 and a
price-to-book ratio of 1.14, SDIV is not richly valued.
And while SDIV offers exposure to both developed and
developing markets, its eurozone exposure is not significant to
be a major cause for concern. SDIV's recent pullback seems
appears to be a case of too much too fast and below $21, the ETF
is a steal.
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