4 More Dividend ETFs for the Rest of 2012 (BKLN, HDV)
Dividend investors can breathe a sigh of relief. It looks as though Senate Democrats, who will let most of the most of the Bush-era tax cuts lapse, are willing to make some concessions on the capital gains and dividend taxes.
This is good news for those not in the top tax bracket. Under the Democrats' proposal, even top bracket taxpayers would pay a maximum rate on this investment income of 20 percent in 2013, according to the Christian Science Monitor.
The dividend tax debate has served as a stark reminder to the investment community that the intersection of Wall Street and Capitol Hill runs deep, perhaps uncomfortably so for many investors. While there seems to be debate regarding whether or not the Bush tax cuts cajoled more dividends out of more companies, there is irrefutable evidence to support the notion that dividends account for a significant percentage of a portfolio's returns over time.
In fact, reinvested dividends account for 40 percent of broad market returns since 1988, according to report by iShares, the world's largest ETF issuer. With that in mind, here are some more dividend ETFs that merit consideration for the rest of 2012.
iShares High Dividend Equity Fund (NYSE: HDV) HDV is not even 18 months old, but the ETF has quickly become one of the more prominent members of the dividend ETF community. Home to 75 stocks and $1.8 billion in assets under management, HDV competes with funds such as the Vanguard Dividend Appreciation ETF (NYSE: VIG).
VIG, the largest dividend ETF on the market, has found favor with investors primarily because it is cheap. However, this is one example of an ETF rivalry where investors would do well to not focus solely on cost. Since April 8, 2011, HDV has gained 19.2 percent compared to 2.3 percent for VIG. No matter how cheap VIG is, Vanguard cannot make up almost 1,700 basis points worth of alpha through low fees.
Global X Canada Preferred ETF (NYSE: CNPF) The hunt for yield has, not surprisingly, benefited ETFs that track preferred stocks. Two of the largest ETFs offering exposure to this high-yielding asset class, the iShares S&P U.S. Preferred Stock Index Fund (NYSE: PFF) and the PowerShares Financial Preferred ETF (NYSE: PGF), offer double-digit year-to-date returns.
The Global X Canada Preferred ETF has lagged its more U.S.-centric rivals this year, but that trend appears to be reversing. In the past month, CNPF has outpaced PFF and PGF by wide margins. CNPF does not skimp on yield with a trailing 12-month yield of 3.83 percent, according to Global X data.
WisdomTree Emerging Markets SmallCap Dividend Fund (NYSE: DGS) With almost $888 million in AUM, the WisdomTree Emerging Markets SmallCap Dividend Fund is the king among dividend ETFs offering exposure to emerging markets small caps. However, it is the emerging markets/small-cap combination that makes DGS a riskier play than a U.S.-focused dividend fund.
The biggest knocks on DGS are a 21.2 percent weight to financials and a 24.3 percent weight to Taiwan. Then again, Taiwanese have already incurred significant damage and a possible rebirth of the long China trade would certainly lift the fortunes of Taiwanese equities and DGS.
On the upside, four of the ETF's top-10 country weights are among the better emerging markets avenues investors can consider: Malaysia, Thailand, Turkey and Chile.
PowerShares Senior Loan Portfolio (NYSE: BKLN) The PowerShares Senior Loan Portfolio is somewhat anonymous in the world of high-yield bond ETFs. Well, "anonymous" may be a stretch because BKLN has almost $603 million in AUM and it is hard for any junk bond ETF of this size to go unnoticed these days.
BKLN does charge 0.76 percent per year, and that is high even for high-yield bond funds. The good news is the ETF features a trailing 12-month yield of almost five percent and the averages years to maturity for BKLN's 117 holdings is less than 4.6 years.
That speaks to one of the reasons investors like senior loans: With shorter maturities, these instruments are less sensitive to interest rate risk than long-dated bonds.
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