The Monthly Dividend ETF Difference
Finding ETFs that pay monthly dividends is not a difficult task.
Well, it is not that difficult if an investor is looking at any number of bond ETFs or those funds that track preferred stocks, among other asset classes.
However, despite the rising number of equity-based dividend ETFs, the number of funds that hold stocks and deliver monthly payouts is paltry compared to ETFs tracking bonds, preferreds and other assets known for 12-times-a-year dividends.
The good news is there are some equity-based ETFs that pay monthly dividends. The better news is this number is rising as well. In November, WisdomTree (NASDAQ: WETF) announced it was moving four of its dividend funds to monthly payouts, bringing the number of ETFs issued by the firm with monthly payouts to six.
It is not a stretch to say that many income investors would prefer 12 payouts per year over once, twice or four times. Not surprisingly, investors will also want to know if there is an advantage to owning monthly dividend ETFs compared to traditional fare when it comes to overall returns. What follows are a few examples aimed at discovering if monthly dividend stock ETFs are truly advantageous.
PowerShares High Yield Equity Dividend Achievers Portfolio (NYSE: PEY) Somewhat overlooked in the dividend ETF conversation, the PowerShares High Yield Equity Dividend Achievers Portfolio has been around for a while. PEY debuted in late 2004 and now has almost $293 million in assets under management. This ETF also shares something in common with some of its larger dividend ETF brethren.
That trait is using a selection methodology that centers around length of a constituent's dividend increase streak. As is the case with the Vanguard Dividend Appreciation ETF (NYSE: VIG), PEY's holdings must have dividend increase streaks of at least a decade to be eligible for inclusion.
Beyond the fact that PEY pays a monthly dividend and VIG pays quarterly, there are significant differences between the two. For example, PEY is home to 50 stocks, about a third of the size of VIG's roster. The PowerShares offering also allocates over 46 percent of its weight to small-caps. Importantly, PEY has a trailing 12-month yield of almost 4.1 percent compared to 2.2 percent for VIG.
Over time, PEY has delivered the goods for investors. Including paid dividends, the ETF is up nearly 12 percent in the past year, 24.4 percent over the past two years and nearly 48 percent over the past three years.
Global X SuperDividend ETF (NYSE: SDIV) A mistake that has previously been made is the comparison of the Global X SuperDividend ETF to U.S.-focused dividend funds. Given that U.S. stocks only account for 27.4 percent of SDIV's weight, those comparisons are off-base.
Using an equal-weight approach that tracks 100 stocks that rank among the world's highest dividend payers, SDIV has become one of the fastest-growing dividend ETFs on the market today. In August, the ETF passed the $100 million in AUM mark. Today, the fund has over $355.2 million in assets.
While SDIV does hold some U.S. stocks, a fair comparison can be made against the iShares Dow Jones International Select Dividend Index Fund (NYSE: IDV). Beyond SDIV's monthly dividend and IDV's quarterly payout, perhaps the comparison is not all that fair.
For example, SDIV has a 30-day SEC yield of about seven percent compared to 4.28 percent for IDV. Over the past year, SDIV has returned 10.4 percent compared to 9.9 percent for IDV. That difference may not sound large, and some investors might be apt to pick IDV because of its lower fees (0.5 percent per year compared to 0.58 percent for SDIV). However, IDV is far more volatile than SDIV. Over the past year, SDIV's volatility is 400 basis less than IDV's.
WisdomTree Total Dividend Fund (NYSE: DTD) The WisdomTree Total Dividend Fund migrated to the monthly dividend plan in late November, so the data set for how that is affecting the fund is still small. DTD, which is home to more than 900 stocks, is a departure from the dividend increase streak methodology.
Rather, this ETF's index is weighted "to reflect the proportionate share of the aggregate cash dividends each component company is projected to pay in the coming year, based on the most recently declared dividend per share," according to the issuer.
Arguably it is DTD's screening methodology more than its monthly payouts that impact the ETF's returns. That said, DTD has outperformed comparable rivals such as VIG and the iShares High Dividend Equity Fund (NYSE: HDV) over the past three months.
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