Dividend investing has become very popular over the past several years. With the U.S. Federal Reserve keeping interest rates near record lows, investors have moved out of unattractive government bonds and into high-quality, large-cap dividend paying equities. As such, Global X’s SuperDividend ETF (SDIV, A) has been one of the most population options for investors moving into dividend-paying stocks [see 101 High Yielding ETFs For Every Dividend Investor].
By maintaining a portfolio of global companies with the highest dividend yields, the ETF has been able to offer an attractive 6.69% 12-month yield with approximately $476 million in total assets under management, as of April 9, 2013, making it a staple in many portfolios.
Global X’s newly launched SuperDividend U.S. ETF (DIV) offers investors another great alternative to SDIV, focusing exclusively on U.S. stocks that are paying the highest dividend yields. In this article, we’ll take a look at this new ETF and what it means for investors.
The Global X SuperDividend U.S. ETF tracks the performance of companies that rank among the highest in terms of dividend yield. With equal weighting across a diverse group of 50 securities, the fund mitigates risk by avoiding exposure to any individual company, capping sector weights at 25% of the total portfolio, and applying filters to exclude companies that are likely to cut their dividends, as determined by the index provider.
The ETF has an expense ratio of 0.45%, which is on par with the Large Cap Value Equities ETFdb Category‘s average 0.37% expense ratio, and well below many mutual funds. With its focus on dividend paying stocks, the fund anticipates paying a monthly dividend yield to investors, similar to SDIV, which differs from the quarterly dividend payments made by most other equities and ETFs.
What Makes It Unique?
Global X conducted a dividend analysis in its High Dividends: Myth vs. Reality whitepaper, studying dividend yields, risks and returns. The paper found that dividend paying stocks have, over time and based on numerous metrics, materially outperformed non-dividend paying stocks, with the highest risk adjusted returns coming from stocks paying a 10-17% dividend yield versus those paying either higher or lower dividend yields.
According to the same paper, stocks paying 10-17% dividend yields are often not included in dividend-focused indexes and funds. The Global X SuperDividend funds provide access to these key securities and generated an 18.7% annualized return between 2003 and 2012, beating all other dividend-paying and non-dividend-paying stocks over the same time period. As a result, the ETF offers investors unique exposure to this niche of the dividend-paying world [see Dividend "High Yielders": Head-To-Head].
Under The Hood
The Global X SuperDividend U.S. ETF invests at least 80% of its total assets in an index that tracks the performance of 50 equally weighted common stocks, MLPs and REITs that rank among the highest dividend yielding equity securities in the U.S. These components have paid dividends consistently over the past two years and have lower volatility relative to the S&P 500, making them relatively safe bets for long-term investors [see 8% Yield ETFdb Portfolio].
As would be expected from a dividend ETF, the sector breakdown is skewed towards REITs, utilities, MLPs and telecommunication equities. Companies in these sectors tend to pay higher dividends due to the predictability of their revenue streams and profitability:
The Global X SuperDividend U.S. ETF offers investors exposure to U.S. equities that pay sustainable high dividends with low relative volatility. By targeting dividend yields between 10-17%, the ETF is unique among many other dividend-focused funds, with research backing up its assertion that stocks generate the highest risk-adjusted returns in the market. If you are an investor looking to build a sustainable income portfolio, you may want to keep an eye on this fund with its high yields, monthly dividend payments and strong recent performance.
Disclosure: No positions at time of writing.