With an explosion of ETF's over the past few years, finding quality, goal specific, industry or type focused funds can be very challenging. With dividend investing growing in popularity, today we will be looking at 3 ETF's that focus on dividends. Two will be more focused on investors looking for high yields while the third will be more traditional and offer the dividend investor safety, security and a solid yield.
So, let's get right to it.
The first pick is the Arrow Dow Jones Global Yield ETF (GYLD). The GYLD is a high yielding ETF, currently boosting a 7.67% dividend yield, which focuses on finding and investing in the 150 highest yielding investable securities in the world. The ETF holds both stocks and bonds and that ratio currently sits at a 60/40 split. The ETF's top 3 holdings include Whiting USA Trust II (WHZ), CVR Partners, LP (UAN) and Alon USA Partners, LP (ALDW), of which two are oil and gas partnerships.
While the fund has lagged the S&P 500 over the past 5 years, returning just 7% compared to 62%, GYLD offers investors looking for yearly income the ability to maintain their asset value while having funds to live on. Furthermore since the fund does not have a region specific limitation and is permitted to find investments throughout the world, investors are gaining further exposure to international markets. But, with any fund owning bonds, GYLD will likely face interest rate pressure if and when bond rates begin to rise. Also GYLD has a rather high expense ratio of 0.75% and a portfolio turnover of 87% over the last twelve months.
The next pick is again a high yielding ETF. The PowerShares KBW High Dividend Yield Financial ETF (KBWD) not only focuses on high yielding investments, but has a focus on the financial industry. KBWD invests at least 90% of its assets in equities of publicly listed financial services companies that operate within the United States. KBWD currently yields 8.5% and pays out a dividend on a monthly basis. The ETF has 43% of its $300 million in assets in financial organizations focusing on real estate while the other 54% is directly in the financial services sector. Two of KBWD's top 3 holding are in real estate investment trusts.
KBWD and GYLD have similar 5 year performance when compared to the S&P 500, up 4.8%. And again similar to GYLD KBWD is facing down interest rate risk due to its exposure to both financial services companies and the REIT's it owns. But if you are simply looking for monthly income at an above average rate and the diversity of an ETF, KBWD could be a winner for your portfolio.
Lastly, the SPDR S&P Dividend ETF (SDY) is the ultimate dividend lover's dream come true. The ETF's goal is to track the performance of the highest yielding S&P Composite 1500 Index components which has also consistently increased their dividend every year for at least the past 20 consecutive years. In plain English that means when you purchase the SDY you are buying an ETF with all of the S&P 1500 dividend aristocrats in it.
The fund currently yields 2.27%, which is slightly below the indexes current yield, but since the ETF only holds dividend aristocrats SDY offers much more security in the form of reliable consistent dividend payments and increases each year. SDY also has a net asset value of over $13 billion, making it one of the largest dividend aristocrat funds available, ProShares S&P 500 Dividend Aristocrats (NOBL) has a NAV of just $690 million. SDY is comprised of 101 stocks and the top five holdings consistent of AT&T, People's United Financial, HCP, Realty Income, and McDonalds. SDY also has a very reasonable expense ratio of just 0.35%. While the fund has lagged the market over the past few years, 1 year period SDY is up 5.72% vs. S&P 500 12.29%, 5 year period SDY is up 66.22% vs S&P 500 89.8%, the ETF also is only buying mature, well established company's which have been able to prove they can ride out market downturns and recessions.
The wild world of ETF's offers every kind of investor a number of options to choose from regardless of what their goal is. In the world of dividend investing, high yield may be good for one person, while global exposure may be better for another, or safety and reliability better suits the next. Determine what your goal and risk tolerance is first, and then have fun sifting through the endless options.
Matt Thalman
INO.com Contributor - ETFs
Follow me on Twitter @mthalman5513
Disclosure: This contributor held long positions in Apple, Tesla, Intel, Google, Amazon.com, Facebook, Priceline and Microsoft at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
Ray I am not sure were you are getting that information from, KBWD's own website stats the expense ratio is at total 1.55% (which is broken down into 0.35% management fee and 1.18% acquired fund fees & expenses). While I don't think 1.55% is a very good expense ratio, I also don't believe it is terrible consider how high the dividend is, meaning you would still be making nearly 7% after expenses and any possible appreciation. Again as I mentioned in the article, this ETF may not be for everyone, but someone looking for a large diversified dividend every month, may find this attractive, even after the 1.55% expense. (link to Invesco Powershares KBWD page were I got the 1.55% expense ratio, https://www.invesco.com/portal/site/us/financial-professional/etfs/product-detail?productId=KBWD)
Matt Thalman
That 8.5 yield on KBWD looks great until you factor in the 2.8% expense rate on the fund.