No Imminent Lift Off? Time For These Dividend ETFs

By | October 6, 2015

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Dividend investing has seen a lukewarm year so far in the U.S. as the markets speculated a faster-than-expected Fed lift-off prompted by steady growth in the domestic economy. As a result, most dividend ETFs are trading in red in the year-to-date frame. However, a volatile start to Q4 has once again put the spotlight on income-focused investing. Moreover, a still-patient Fed and the likelihood of more cheap money inflows cheered up dividend investing all over again. Be it bonds, high dividend equities, or pass-through securities, picks that target higher yielding securities have fared well since the dovish September Fed meet. The allure rose further after the U.S. economy reported sub-par job data for the month of September last week. The soft jobs’ report has raised questions over the health of the U.S. economy and the fate of Fed’s policy tightening. Headline job gains for September came in at 142K versus the estimated 200K and the prior month’s tally of 136K (read: ETFs that Gained & Lost Post Dismal Job Data ). The originally reported July tally was also revised lower to 223K from 245K originally. The year-to-date monthly pace of job gains now averages 198K, though the pace for the last three months was way lower at 167K. This goes against the monthly average of 260K for 2014. While a subdued inflation data and global growth worries were already obstacles on the course of the Fed policy, the job data made the case worse and Fed’s policy tightening seems some way off. Investors who were earlier overconfident about a December rate hike in the U.S., have now started to push back the timeline to early next year, presuming a sluggish U.S. economic rebound. While it is a decent setting for capital gains, Treasury bond yields slumped and are at 2.07% at the time of writing, leading some to believe that a new bull market may be at hand. In this type of an environment, investors can count on income picks for Q4. While individual stock pick is always an option, ETFs give options to fairly diversify one’s portfolio. 4 Dividend ETF Picks for Q4 SPDR S&P International Dividend ETF (NYSEARCA: DWX ) If you want to stay global, DWX could be your ticket as this fund focuses only on high yielding stocks from around the globe. After all, most developed economies are supposed to carry on their accommodative stance next year unlike the U.S. This is done by tracking the S&P International Dividend Opportunities Index, a benchmark that holds about 100 securities in its basket. Currently, the $1 billion-fund is a bit heavy on traditional high yield sectors like financials (24.8%), utilities (22.8%), telecom (15.9%), and energy (14.2%), though no single company accounts for more than 3.4% of the total assets. In terms of yields, this pays a solid 5.91%, while it charges investors a reasonable 45 basis points a year in fees for the service. The fund was up over 6.9% in the last five days (as of October 5, 2015). Vanguard High Dividend Yield ETF (NYSEARCA: VYM ) This large cap centric fund provides exposure to the high yielding U.S. dividend stocks by tracking the FTSE High Dividend Yield Index and could thus be a lucrative option for those seeking higher current income. The ETF is one of the largest and popular choices in the dividend ETF space with AUM of over $10.3 billion. Expense ratio comes in at 10 bps (read: 3 Excellent Dividend ETFs for Growth and Income ). In terms of sector, the fund is widely spread out with financials, consumer goods, technology, industrials, health care, and oil & gas taking double-digit exposure in the basket. The fund yields 3.33% as of October 5 and was up over 5.6% in the last five trading sessions. The ETF has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: 3 Cheap Value ETFs with Strong Dividend ). Schwab U.S. Dividend Equity ETF (NYSEARCA: SCHD ) This fund tracks the Dow Jones U.S. Dividend 100 Index, which measures the performance of high dividend yielding U.S. stocks that have a record of consistently paying dividends. Notably, companies, that raise dividends regularly, appear steadier than those which offer higher yields. In a market crash, these dividend aristocrats stand out pretty strong and navigate through volatility. The product has already amassed roughly $2.51 billion in assets and has a dividend yield of 3.15%. The fund charges a meager 7 bps in fees and trades in solid volume of more than 500,000 shares per day. Consumer Staples is the fund’s focus sector with about one-fourth exposure followed by IT (19.74%) and Industrials (13.85%). It currently has a Zacks Rank #3 and added about 5.3% in the last five trading sessions (as of October 5, 2015). SPDR Dividend ETF (NYSEARCA: SDY ) This fund provides exposure to the 102 U.S. stocks that have been consistently increasing their dividend every year for at least 25 years. It follows the S&P High Yield Dividend Aristocrats Index and has amassed $12 billion in AUM. Volume is solid, exchanging more than 765,000 shares in hand, while expense ratio comes in at 0.35%. The product is widely diversified across components as each security accounts for less than 2.81% of total assets. Financials is the top sector taking up one-fourth of the portfolio while consumer staples (15.1%), industrials (13.4%) and utilities (11.8%) round off the next three spots. The fund was up nearly 5% in the last five days and has a Zacks ETF Rank of 3. Link to the original post on Zacks.com Scalper1 News

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