Fri Jun 20 2014
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3 Dividend ETFs Crushing The Market

After being depressed by the Fed’s taper talks, the appeal for dividend stocks and ETFs have returned over the past few months. This is especially true as the fears of interest rate hike has abated and Treasury yields have once again fallen to lower levels despite the Fed paring its stimulus.  

Though the broad equity markets are hovering around their record highs, uneven economic growth, uncertain Fed policy, China slowdown and geopolitical tensions in Ukraine and Iraq are weighing on the market. Given this, investors are becoming defensive and shifting their focus to products that provide stability and safety in a rocky market (read: 3 ETFs Hitting All-time Highs in Rocky Market).  

Dividend products offer both of these world’s – safety in the form of payouts and stability in the form of mature companies that are less volatile to the large swings in the stock prices. The dividend paying securities are the major sources of consistent income for investors when returns from equity market are at risk. This is especially true as the companies that pay dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.

Below, we have highlighted three dividend ETFs that are clearly outpacing the broad market indices by wide margins and are considered solid options for investors searching for yields in a low rate environment as well as some returns in uncertain markets (read: Dividend ETFs Explained: What Investors Need to Know).

Global X SuperDividend U.S. ETF ((DIV – ETF report))

This fund provides exposure to the highest dividend yielding U.S. securities by tracking the INDXX SuperDividend U.S. Low Volatility Index. It has amassed $ 109.3 million in its asset base while trades in small volume of less than 35,000 shares. The ETF charges 45 bps in fees per year from investors.

Holding 50 securities in its basket, the product is widely diversified across each component as none of these holds more than 2.45% of assets. However, utilities accounts for one-fourth of the portfolio, closely followed by energy (20%) and real estate (19%). DIV hit its fresh high of $ 29.00 yesterday and moved higher by about 14.2% in the year-to-date time period. The ETF has high annual dividend yield of 5.5%.

PowerShares S&P 500 High Dividend Portfolio ((SPHD – ETF report))

This fund follows the S&P 500 Low Volatility High Dividend Index and holds 50 securities, which have historically provided high dividend yields and low volatility. It is widely spread out across individual securities as each holds less than 3.63% of assets. From a sector look, utilities takes the top spot with more than one-fourth of the portfolio while consumer staples, financials and energy round off to the next three with double-digit exposure (read: 3 Excellent Dividend ETFs for Growth and Income).

The fund has so far managed assets worth $ 177.8 million while volume is also light, trading under 37,000 shares per day. Expense ratio came in at 0.30%. The ETF added 12.2% so far this year and touched an all-time high of $ 31.26 in yesterday trading. The fund also has an impressive dividend yield of 3.67%.

ALPS Sector Dividend Dogs ETF ((SDOG – ETF report))

This fund applies the ‘Dogs of the Dow Theory’ on a sector-by-sector basis using the S&P 500. This could be easily done by selecting the five highest yielding securities in each of the 10 GICS sectors and equally weighing them. These higher yielding stocks will appreciate in order to bring their yields in line with the market, potentially leading to outsized gains.

This approach results in a portfolio of 51 stocks with each security accounting for less than 2.5% of total assets. The fund focuses on yield in the large cap market while giving investors roughly equal exposure to all sectors. SDOG has amassed $ 721.4 million in its asset base while trades in moderate volume of more than 110,000 shares. It charges 40 bps in annual fees and has an annual dividend yield of 3.24%.

The ETF hit its all-time high of $ 37.60 in yesterday’s trading session, representing a gain of about 10.8% in the year-to-date time frame (read: Dividend ETFs Hitting New Highs).

Bottom Line

These products are expected to continue outperforming given that the Fed has committed to keep its interest rates near zero for a considerable time, even after the completion of QE tapering. This would make investors looking for high yield in the equity markets rather than bonds.

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