By Eric Dutram
If investors want to retire early, they are going to have to lean heavily on dividends. That is because these cash payouts are vital to portfolio growth, and a steady source of income later on as well.
In fact, there can really be no denying the importance of dividends to long-term stock performance in any capacity. According to recent research, dividends have accounted for about 50% of the total return for the S&P 500 since 1926, suggesting that they have been vital to investors and their portfolios for quite some time.
While some might suggest that bonds are also capable of steady streams of income, there are several issues afflicting the fixed income market, which should curtail their appeal to many investors. Chief among them is the elevated valuations in the bond space, as well as the still unfavorable tax treatment of bond payouts when compared to dividends.
These issues, along with equities’ traditional outperformance of the space make bonds a poor choice for many investors. This is especially true if rates rise and bonds finally fall back to more reasonable levels, a situation that would crush any hopes of an early retirement for bond heavy investors.
How to Play
Clearly, dividend stocks are the way to go for long-term investors, but not just any high income stock will do. Instead, a global look needs to be taken in order to incorporate some of the higher yielding international markets that can help to power portfolio growth in the years ahead.
Fortunately for investors seeking to make a play on dividends with a global focus, there are a number of ETFs that provide great exposure to the market. Below, we highlight three of our favorites, all of which yield over 6.5%, and can help investors in their quest to build up their portfolios quickly, and retire early:
Guggenheim S&P Global Dividend Opportunities Index ETF (LVL)
This product tracks the S&P Global Dividend Opportunity Index, holding roughly 100 common stocks and ADRS in its portfolio. Stocks included will have a high dividend yield, while the ETF charges 60 basis points a year with a medium level of volume at about 50,000 shares a day (see Three Overlooked High Yield ETFs).
The portfolio does include some American securities (16%), but it has a developed market focus overall with heavy weights in Australia and France to round out the top three. Sectors are tilted towards telecoms and financials, while energy and consumer discretionary firms also receive double digit weights as well.
The ETF is an extremely high yielder though, and can easily be thought of as an income destination by pretty much any investor. Currently, the 30-Day SEC payout is coming in at just under 7.15%, while the 12 month yield is at roughly the same amount as well.
SPDR S&P International Dividend ETF (DWX)
This internationally focused ETF tracks 100 common stocks from around the globe that offer high dividend yields. The fund charges investors 45 basis points a year in fees, and sees solid volume of roughly 200,000 shares in a normal trading day.
In terms of exposure, the fund is heavy in the usual suspects of financials, telecoms, and utilities, as these three account for more than half the portfolio. Nationally, Australia leads the way with nearly 28% of assets, although in aggregate, European stocks account for roughly half the portfolio (read 11 Great Dividend ETFs).
The real promise of the fund is in the payout though, as the 30-Day SEC yield comes in at 6.7%. This is a level far higher than what investors see in the bond market, while this ETF still has a great chance at capital appreciation over the long haul.
Global X SuperDividend ETF (SDIV)
The final high dividend global ETF on our list targets the Solactive Global SuperDividend Index. This benchmark provides exposure to 100 high yield stocks from around the world, holding securities in a wide range of segments including MLPs and REITs.
The fund does charge investors 58 basis points a year, but it sees solid volume and AUM, so trading costs should be very low. The dividend ETF is also a lower risk choice, as it has a standard deviation of about 13.1% and a well spread out portfolio.
Still, investors should note that American stocks account for about 30% of assets, so there is definitely a big chunk in domestic firms. Beyond that though, European, Canadian, and Australian firms dominate the rest of the list, along with financials/real estate from a sector perspective.
In terms of yield, this fund has the lowest of the three in 30-Day SEC terms, coming in at ‘just’ 6.9%. However, thanks in part to its bigger U.S. holding and REIT allocation, this fund has outperformed the other two from a price perspective in 2013, making it a great choice as well for investors (see Global X Debuts US SuperDividend ETF).
Dividends are key for long-term portfolio performance, and international markets can often provide outsized payouts. Investors can easily combine these two potent forces together in the aforementioned ETFs, and hopefully, ride a wave of big payouts and solid returns to early retirement.
SPDR-SP INT DIV (DWX): ETF Research Reports (email registration required)
GUGG-SP GLBL DV (LVL): ETF Research Reports (email registration required)
GLBL-X SUPERDIV (SDIV): ETF Research Reports (email registration required)