Tag Archives: energy

New High Dividend ETF With Free Cash Flow Focus By Pacer

With the global market being edgy since the start of this year, demand for value-oriented and high-yielding products is high now. Agreed, every storm ends sometime and risk-on sentiments will return to the market. But this year seems to be a little different with growth worries expected to remain in the marketplace for a longer time (read: Enjoy High Yield with These Low Beta EM Local Currency Bond ETFs ). This operating backdrop makes the launch of Pacer Global High Dividend ETF (BATS: PGHD ) – launched by Pacer Funds Trust – extremely well timed. Let’s see how the fund is designed and what its prospects are. PGHD in Focus It is a strategy-driven, exchange-traded fund that looks to provide a steady stream of income and capital appreciation by picking companies with a high free cash flow (FCF) yield and an impressive dividend yield. The fund accomplishes its objective by tracking the Pacer Global Cash Cows Dividends 100 Index. The index first tracks 1000 companies in the FTSE all-world developed large-cap index. From the initial universe, 300 companies with the highest trailing 12-month free cash flow yield are chosen. From this set, 100 companies having the highest trailing 12-month dividend yield are picked to form the underlying benchmark. The fund currently holds 100 stocks. Currently, the U.S. is the top nation in the fund with over 35% weight followed by Switzerland (8.45%), the U.K. (7.14%) and Australia (6.77%). Sector-wise, Industrials (16.93%) and Consumer Staples (16.6%) dominate the fund with over 32% allocation, while Energy (5.8%) and Financials (0.82%) occupy the bottom two spots. The fund is equal-weighted in nature, with no stock accounting for more than 2.27% of the basket. Wal-Mart Stores, Altria Group and AT&T are the top three holdings of the fund. The fund charges 60 basis points in fees. As the name suggests, the fund is rich in yields with the Pacer Global Cash Cows Dividends 100 Index offering 5.06% annual yield (as of January 29, 2016). How Could it Fit in a Portfolio? The fund could be a good choice for value investors with a global market focus. Against the present low-yield backdrop worldwide, the hunt for higher yield is common among investors. This, accompanied by the higher free-cash flow yield criteria, provides the portfolio a value quotient as these companies traditionally suffered less during the economic upheaval, per the factsheet (read: 3 Dividend ETF Winners Year to Date ). Also, the issuer went on explain that higher free cash flow generating companies are also great tools to tap growth opportunities as these in turn result in capital gains. Moreover, the fund’s exposure to numerous economies is expected to provide huge diversification benefits to investors. However, investors should note that the ETF will be subject to severe currency risk. As such, the product is most suitable for long-term investors, willing to bear any currency volatility in the short run. ETF Competition The high dividend yield space is chockablock with products. From that angle it wouldn’t be easy for the fund gain enough market share. So, the fund will have to sell the highest free-cash flow yield feature to hog investors’ attention. This space is yet to be exploited. TrimTabs International Free-Cash-Flow ETF (NYSEARCA: FCFI ) normally grabs the attention of investors interested in the free-cash flow related funds. FCFI looks to track the international companies with the highest free cash flow yields. But since FCFI yields only 1.21% annually (as of February 24, 2016) and charges 69 bps in fees, the newly launched PGHD has chances to score more, with increased yield and a lower expense ratio. Link to the original post on Zacks.com

How You Can Beat The Market With Dividend Aristocrat ETFs

With stocks down across the board to start the year, many investors are scrambling to find better selections for today’s more uncertain market environment. While utilities and consumer staples are becoming more popular thanks to this sentiment, there are also non sector-specific ways to improve performance relative to the market. One outperforming strategy has been to focus on higher quality dividend-paying companies. Stocks in this area haven’t seen incredible returns, but they have done far better than the broad market over the past few months. But not just any dividend-paying stock will do, as a focus on the so-called ‘dividend aristocrats’ should be a go-to strategy for investors in this market environment. What is a Dividend Aristocrat? A dividend aristocrat stock is a company that has a long track record of increasing dividend payments year after year. The number of years required varies depending on who you ask, but at least ten consecutive years of dividend increases is usually required to get into this select bunch. A company that fits this bill is a rare breed since it has been able to boost payments no matter what is happening in the broader economy. This shows an impressive ability to manage capital effectively, while also taking care of shareholders too. How to Invest While you can find a few specific stocks that are in the dividend aristocracy, an easier way to play this trend might be with ETFs. There are actually a few funds tracking this corner of the market, and all have been outperforming the broad S&P 500 in this recent rough patch. That’s right, the SPDR S&P Dividend ETF (NYSEARCA: SDY ) , the ProShares S&P 500 Aristocrats (NYSEARCA: NOBL ) , and the Vanguard Dividend Appreciation ETF (NYSEARCA: VIG ) have all easily outperformed the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) over the past three months, while the trio are also outperforming from a one-year outlook as well. Clearly, a focus on quality has been the way to go in this uncertain market environment. What’s The Difference? While all three have managed to beat out broad markets, investors have to be wondering what are the key differences between the three main dividend aristocrat ETFs? Well, for the most part, the key difference is how exclusive of a club the funds make the aristocrats. VIG is the least exclusive, as it allows companies to join its benchmark after raising dividends each year for at least one decade. SDY is the next in line with a similar policy, but for two decades, while NOBL is the most exclusive, only holding companies that have raised dividends every year for at least a quarter century. As you might be able to guess, the higher the barrier to entry, the fewer the companies that pass the screen. As such, NOBL has the fewest number of securities at 50, followed by about 100 for SDY and roughly 175 for VIG. All three do a pretty good job of spreading out assets, but actually VIG is the most concentrated thanks to its cap-weighted focus. Meanwhile, NOBL is the least concentrated thanks to its equal weighted focus, which puts the same amount in each stock, while SDY takes a different approach, weighting by dividend yield. Either way, consumer and industrial stocks are top holdings in each of the three, while all of them have little in the energy sector, largely thanks to the recent sector downturn. And while all three are extremely tradable, there are some expense differences to note as well. VIG is the cheapest – as is usually the case with Vanguard products – and comes in at 10 basis points a year compared to 35 for the other two. While none are really that expensive, it is certainly a big difference on a relative basis, and something to consider for cost-focused investors out there. Key Caveat While all three might have a dividend focus, it is important to remember that they zero in on companies that are growing dividends at a constant rate, not necessarily those that are paying out the most in terms of yield. In fact, while all three beat out the broad market in terms of their 30-Day SEC yield, none top three percent either. So while they are modest income destinations, investors who are just seeking yield will likely be disappointed by the dividend aristocrat family. Bottom Line The dividend aristocrat space is often overlooked by investors in favor of ‘sexier’ or more enticing market segments. However, over the past few months, stability and rock solid companies have been in vogue instead. This trend has allowed the dividend aristocrat ETFs of VIG, SDY, and NOBL to beat out the market and provide investors with a bit more stability in this uncertain time too. Just remember, none of these aristocrat funds are going to pay you a huge yield, but in turbulent economic times their outperformance makes the aristocrat funds the nobility of the investing world, and definitely worth consideration for your portfolio. Original Post

Irrational Pessimism – Throwing The Baby Out With The Bath Water

Since first publishing kortsessions.com in February 2013, I have tried not to get into the weeds on individual stocks ideas. We are all about the media and the adverse outcomes in store for those who rest their investment policy on their pronouncements. When I did mention a name for illustrative purpose, I did my best to make certain that I acknowledged my fallibility and ownership position (if I had one), and to advise all readers consuming my work to make certain companies mentioned were suitable to their own investment circumstance and tolerance for risk before they considered purchase… caveat emptor. Today’s post is going to sound like a recommendation. But because of the irrational pessimism surrounding a certain segment of the market, the securities covered have great illustrative value. Nonetheless, I urge you refer to the admonition in paragraph one before rushing out and buying any of the two names that I will refer to. I own positions in both names. Background of the craziness My example today comes from a former client, Tortoise Capital Advisors . As their name implies, “Slow and steady wins the race.” They are not trying to hit the ball out of the park every time they come to the plate. Singles do just fine. Tortoise manages both separate accounts, closed-end, exchange-traded funds and open-ended funds (AUM $13 billion), the majority of which specialize in the shares of Master Limited Partnerships (MLPs). I have owned their shares in the past, and recently initiated positions in their flagship fund, the Tortoise Energy Infrastructure Corporation (NYSE: TYG ), and the Tortoise MLP Fund (NYSE: NTG ). These two funds, in particular, are midstream (processing, storage and pipelines – not production ) oriented. They are conduits and not terribly sensitive to commodity prices. The management at Tortoise is very conservative. I can vouch for this from personal experience. As an institutional broker with both A.G. Edwards and Wells Fargo, I had the opportunity to bring managements in for meetings with their PMs and analysts. I will attest that they were an extremely tough sell. They have scrupulously avoided commodity risk and the risk of anything questionable in financing plans/needs and capitol structures (excessive leverage). They looked for simple businesses with long-term repeatable revenue streams. They did their homework. Both TYG ($23.58, yielding 11%, a/o-2/26) and NTG ($15.20, yield 11%, a/o- 2/26), after making all-time highs in 2013 ($50.64 and $30.18 respectively), began precipitous declines in 2014. Interestingly, TYG, because it had the word “Energy” in its name, began to plummet first; even though none of its MLP investments owned oil and gas reserves or production. Its holdings were all fee-based conduits, storage or processors, whose prices had collapsed due to oversupply issues in commodities that they transported, but whose demand (ergo, fee-generating capacity) continued to grow. This was crazy, but par for the course for the stock market. Linn Energy LLC (NASDAQ: LINE ) and Kinder Morgan, Inc. (NYSE: KMI ) exacerbate matters In the case of Linn, it is an upstream (ergo, highly exposed to commodity risk via owned oil and gas production) MLP that came under bear attack for its hedge accounting (completely unwarranted). The company made a large acquisition, with the idea that it could swap out pieces for lower-risk producing assets and sell equity to finance the rest. It did this on the credit card. The crude market turned. Linn Energy could not sell or swap assets. When oil collapsed, its stock price collapsed. The company could not sell equity to pay down debt. Linn’s stock, which at one time traded as high as $42, is now less than $.50 per share. Importantly, Linn and the upstream partnerships are outliers. Though midstream MLPs, for the most part, have little commodity exposure, investors did not want to be confused with the facts and sold. KMI was another case of a bear attack on what was considered at one time “best of breed” in the midstream MLP space. It was also a situation where an acquisition was made in a market that was not sympathetic to financing MLPs. Ergo, to put itself back on sound financial footing (which it did – see here ), the company slashed its dividend 75%, proving the naysayers correct and causing further group-wide liquidation… throwing the babies out with the bathwater. The Elephant in the Room: Is the MLP model broken? According to Tortoise portfolio manager, Matt Sallee …Looking at the facts, midstream MLPs, their fundamentals are not broken. Our portfolio has average cash flow growth of 20% year over year looking at EBITDA, 10% per unit. And while not every company has announced their 4th quarter distributions, north of half of our portfolio has, and that weighted average distribution as I mentioned previously is up about 3% over the prior quarter, so we feel pretty good about that. Along with that, our MLP portfolio companies, have not experienced any distribution cuts. You read that? Over half their portfolio companies in the last year increased distributions with no distribution cuts! Source: Transcript of Tortoise first quarter 2016 conference call (Additional context: Video presentation by Tortoise CEO, Kevin Birzer) How irrational has the pessimism been in the MLP space? My favorite recent example came on January 20, 2016. In the wake of a horrific (pardon my sarcasm) 1/4 point increase in the Fed Funds rate, a continuing collapse in the price of oil, the Chinese market in free fall, a potential European banking crisis (punctuated by rumors of problems at Deutsche Bank AG (NYSE: DB )), the market opened and fell almost immediately by 550 Dow points. During the panic selling that ensued, TYG hit a low of $18.50 (yielding 14%) and NTG fell to $11.60 (yielding 14.5%). Don’t confuse us with the facts! We can’t stand this anymore! Get us out! The above panic is a descriptive of what one normally sees at a market bottom, not at a top … an example of – “… nameless, unreasoning, unjustified terror … (- Franklin D. Roosevelt ).” It is Irrational Pessimism of the highest order. I believe that the MLP space is a good proxy for much of the craziness afoot in today’s market… healthy babies being tossed out with the bath water. What is your take? Disclaimer: The information presented in kortsessions.com represents my own opinions and does not contain recommendations for any particular investment or securities. I may, from time to time, mention certain securities for illustrative purpose, names where I personally hold positions. These are not meant to be construed as recommendations to BUY or SELL. All investments and strategies should be undertaken only after careful consideration of suitability based on the risks, tolerance for risk and personal financial situation.