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Quality Wins The Marathon Race In Dividend ETFs
4/18/2013 5:27:00 PM
By: Investor's Business Daily
When the stock market stumbles, some amateur investors decide it's time to chase big yields.
Yet, a look at three exchange traded funds in the stock market today shows why focusing on yield alone is the wrong thing to do.
Keep in mind that a stock's yield is often supersized because no one would buy the stock if it had to compete on its fundamentals alone.
In some cases, a fierce sell-off has ballooned the yield. Problems that create a sell-off sometimes lead to a cut or eliminated dividend.
Vanguard Dividend Appreciation ETF ( VIG ) has a quality approach to dividends. The fund tracks the performance of the Nasdaq U.S. Dividend Achievers Select Index.
How does a stock gain Achiever status? It must lift its dividend every year for at least 10 years and must meet volume requirements.
The annualized dividend yield is 2.2%, which isn't big enough for the big-yield set.
SPDR S&P Dividend ( SDY ) is also quality focused. It tries to match the S&P High Yield Dividend Aristocrats Index.
An Aristocrat has raised its dividend every year for at least 25 years.
The top holdings arePitney Bowes ( PBI ) andAT&T (T). The yield is 2.8%.
Now it's time to think big.
Global XSuperDividend (SDIV) offers a whopping dividend yield of 7.7%.
The top holding isBGC Partners (BGCP), a $5 stock with an 8.7% annualized payout.
SuperDividend's giant yield, however, is only part of the story.
Since its launch in mid-June 2011, SuperDividend's price has fallen 6%. Meanwhile, the Vanguard and SPDR dividend funds are up 20% and 24% in the same period.
That's how big becomes little in the market, and little becomes big.