5 Unknown Dividend-Paying ETFs Yielding 12% Or More
The stock market volatility of late puts into question how much longer the current uptrend can last. Dividend-paying ETFs can cushion the blow of day-to-day gyrations and offer investors something for sitting on their hands. Here's a look at five of the fattest-dividend paying ETFs on the market and what's driving there performance.
With the exception of iSharesFTSE NAREIT Mortgage REIT ETF ( REM ), all of these are very thinly traded, so they'll likely have wider bid-ask spreads than more liquid ETFs and it may take longer for your brokerage to fill an order.
1. iShares MSCI Singapore Small Cap Fund ( EWSS ).
12-month yield: 16%, according to iShares.
One-year return: 22.98%.
IBD Relative Strength and Accumulation-Distribution Ratings: 37, C+.
EWSS collapsed $5.77, or 16%, on Dec. 18 when it paid out a dividend of $5.63 a share. It's been trading in a tight sideways range of 1% or less ever since. EWSS pays out dividends twice a year but it warns past dividends don't guarantee future payments.
The ETF is trading below both its 50- and 200-day lines, which is bearish, indicating a strong downtrend. It would be safer to wait until it crosses above the key 200-day line before buying to increase the odds that it's up trending.
Financials, mainly real estate firms, make up half of the portfolio. The second-largest sector, industrials, makes up 17%.
Patricia Oey, an analyst at Morningstar, says investing in Singapore offers good exposure to Asian growth.
She writes on Morningstar.com:
"Singapore has been successful at attracting foreign investment and expertise and capitalizing on regional growth opportunities. Singapore is not resource-rich, making it reliant on trade with other nations, primarily its Southeast Asian neighbors.
"Singapore's largest export markets are Greater China, Malaysia, and Indonesia; its main export products include electronics and chemicals. Corporate Singapore is a major investor in the region, and currently China is the largest recipient of Singapore's foreign direct investment.
"With a relatively educated population, Singapore has been successful at developing high-skilled industries, which face less regional competition."
On the other hand, Standard & Poor's rates EWSS "underweight" based on its in-house "STARS rating system, fair value and technical indicators."
2. iShares MSCI Hong Kong Small Cap ( EWHS ).
312-month yield: 12.75%.
One-year return: 23.15%.
IBD Relative Strength and Accumulation-Distribution Ratings: 40, B+.
EWHS gapped down $3.79, or 12.75%, on Dec. 18 when it paid out $3.70 a share in income.
EWHS is trading below the 50-day average but above the 200-day line, which means it's in a weak uptrend. Nearly half of assets are devoted to consumer discretionary companies, a fifth is in financials and one-seventh is in technology. EWHS trades at a slight discount to emerging markets with a price-earnings ratio of 11.89 and price-to-book of 1.03. Emerging markets have a P-E of 12.3 and P-B of 1.58.
Analysts at South China Research Ltd wrote in a client note last week they're bullish on Hong Kong's stock market:
"China's economic soft landing was achieved in third quarter of 2012. We envisage a U-shape economic recovery ahead. We also expect China to launch financial and tax reforms in fourth quarter of this year during the Third Session of the Central Committee of the Community Party.
"As stock market usually leads the economy, we expect a long-term rebound of the A-share market. This should in turn drive the performance of the Hong Kong market.
"President Obama being re-elected means that perpetual QE (quantitative easing) will continue, which is positive to risk assets, foreign currencies, stocks and commodities. The continuation of economic policies will also help the U.S. economic recovery, which should benefit global stock markets. Obama's policies towards China would also remain mild. This is positive to Chinese stocks.
"The yield of the 10-year HKMA Exchange Note is now at a low of 0.6%. A lower required rate of return should point to a higher valuation for stocks. Furthermore, China and Japan are also increasing money supply."
S&P rates EWHS underweight.
3. UBS E-TRACS 2x Wells Fargo Business Development Companies ETN ( BDCL ).
12-month yield: 18.71%, according to UBS.
One-year return: 74.28% vs. 16.98% for the S&P 500 through Jan. 7.
IBD Relative Strength and Accumulation-Distribution Ratings: 86, B
The double-leveraged version ofUBS E-TRACS Wells Fargo BDC Index ( BDCS ) doubles the payout. It hit a fresh 52-week high last week and is trading high above its 50- and 200-day lines, indicating a strong uptrend.
The underlying index includes 28 business development companies, which lend to small and mid-sized companies at high rates and may also take controlling interest in the companies. They receive interest payments with the added potential of profiting from increasing the borrowing firms' value.
S&P has not ranked BDCL or its unleveraged version,UBS E-TRACS Wells Fargo BDC Index ( BDCS ). Morningstar has no valuation metrics for it either.
4. Global X Junior Miners ETF (JUNR).
12-month yield: 12.33%.
One-year return: 3.75% vs. 19.3% for MSCI EAFE.
IBD Relative Strength and Accumulation-Distribution Ratings: 17, C-.
JUNR is trading deep below its 50- and 200-day lines, putting it in a strong downtrend. But it also looks far oversold, which makes it vulnerable to sharp snapback rallies driven by short-covering and bargain buying.
JUNR trades at discount to world stocks with a P-E of 9.6 and P-B of 0.84 vs. 13.67 and 1.68 on the same metrics for world stocks.
Alex Bryan, an analyst at Morningstar, wrote in October that junior mining companies are very speculative:
"Although early-stage gold miners' values are tied to gold prices, they do not perfectly track the price of the physical commodity. The performance of fund's holdings is largely dependent on their ability to find and develop new gold reserves.
Mining is a capital-intensive business. Small mining companies often do not have the resources to develop new mines without raising additional capital or partnering with larger miners, which can dilute the value of their assets.
"However, when gold miners underperform gold bullion for extended periods, as they have in the past few years, they can offer a less expensive way to gain exposure to gold and have the potential to outperform."
That's despite expected strong demand for gold. Bryan added:
"Central bank purchases of gold have been the largest driver of gold prices over the past few years. Since 2010, central banks have been net buyers of gold, a reversal of their position as net sellers since the 1980s.
"Emerging-markets central banks have driven these purchases, as they seek to diversify their foreign exchange reserves away from U.S. dollars. At the same time, central banks in the developed world have started to view bullion as a strategic reserve asset and curtailed their gold sales programs.
"However, we believe these purchases and the current levels of private sector investment demand are unsustainable in the long-run. Therefore, we project that the price of gold will decline to $1,200 in the long-run."
S&P hasn't ranked JUNR or its peersMarket Vectors Junior Gold Miners (GDXJ) andMarket Vectors Gold Miners (GDX).
5. iShares FTSE NAREIT Mortgage REIT Capped ETF ( REM ).
12-month yield: 12.6%.
One-year return: 26.77%.
IBD Relative Strength and Accumulation-Distribution Ratings: 40, B-.
REM holds a basket of mortgage real estate investment trusts or REITs. They borrow money to buy mortgage-backed securities to profit from the difference. They borrow big and could get hurt by interest rate changes.
It managed to break above its 200-day line last week, confirming a new uptrend.
REM trades at a steep discount to the broader market with a P-E of 8.2 and P-B of 0.90%. The SPDR S&P 500SPY trades at a P-E of 13.25 and P-B of 2.0 with a 2.25% dividend yield.
Abby Woodham of Morningstar says while mortgages are no longer as toxic as they once were, they're fraught with risk.
She wrote in October:
"Consistently low interest rates have benefited REITs because they could borrow money cheaply to leverage up on mortgages and profit on the spread between the two rates. With mortgage rates headed downward, that spread is thinning out. Because most mortgage REITs are highly leveraged, they can still provide attractive yields, but not at a historically high level. It is a distinct possibility that REM's yield will drop below double digits in coming months.
"The second risk, and the one that has been harming REM in recent months, is prepayment. With mortgage rates being driven lower by Fed action, homeowners are refinancing. This means that high-yielding mortgages get called, forcing REITs to reinvest in lower-coupon ones. As QE3 continues, prepayment rates are likely to rise."
S&P rates REM underweight.
Follow Trang Ho on Twitter @TrangHoETFs .