Watch Out For Monthly Dividend ETFs

by on July 23, 2013 | ETFs Mentioned:

Dividend investing has been a major theme in the ETF world for several years as investors have escaped near zero interest rates using funds that capture more attractive yields. As the interest for these products has surged, issuers have been quick to create the kinds of dividends funds that are now available. Monthly dividend funds have a particular attraction to income investors as a payout every four weeks creates a healthy income stream. But investors need to take a look beneath the surface of some of their favorite funds, as the payouts are not always what they seem [for more ETF news and analysis subscribe to our free newsletter].

Payout Inconsistency

Monthly dividend ETFs seem rosy on the surface; a handsome yield delivered to your account each month, but investors should know exactly how the distributions work. Some of the monthly products do not adhere to a consistent payout schedule, but instead greatly vary the dividends that investors receive each month.

The issue ranges from nearly non-existent to severe. Below, we outline some of the most prominent monthly funds and how their payouts stack up.

ETRACS Monthly Pay 2xLeveraged Mortgage REIT ETN (MORL)

This relatively young fund exploded out of the gate, aided by an annualized yield of nearly 15%. Below we outline MORL’s 2013 payments.

While the fund makes its payout every month, the bulk of the annualized yield only comes every quarter, when the distributions make a big leap. If you were to annualize the most recent payout, the fund would be yielding over 64%, but do the same for the prior payout and the yield falls to just 6.8%. There is more than a 1,000% difference between the highest and lowest payout from this year [see also 101 High Yielding ETFs For Every Dividend Investor].

SuperDividend ETF (SDIV, A-)

Global X’s SDIV was another fund that made a big splash upon debuting, as it has more than $650 million in assets despite being on the market for just over two years. Below are the last 12 payments from SDIV.

Unfortunately, there is a 443% difference between the highest and lowest payouts this past year, with those payouts occurring just eight weeks apart.

iShares U.S. Preferred Stock ETF (PFF, A+)

With over $10 billion in assets, PFF is one of the most popular ETFs on the market. While its monthly delta may not be among the worst, it still sees its payout vary more than some would like. Below are the last 12 payments from PFF.


There is a 159% difference between the highest and lowest payouts from the last year, which occurred just one month apart [see also Dividend ETFs: 3 Things To Consider].

Emerging Markets Sovereign Debt Portfolio (PCY, B)

This fixed income fund does one of the best jobs of keeping its payouts tight and consistent for its investors. Below are the last 12 distributions from PCY.


Note that there is a difference of just 17.4% between its highest and lowest payouts this past year.

The Bottom Line

For many investors, the distribution discrepancies are not a major problem. But for those who rely on dividend income each month, watching payouts jump back in forth, drastically in some cases, can make life a bit more stressful. While there is certainly nothing wrong with any of the aforementioned funds, investors should take a look under the hood at a fund’s distribution history before making an allocation.

Follow me on Twitter @JaredCummans.

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Disclosure: Long PFF.