Seeking Alpha
What is your profession? ×
Portfolio strategy, ETF investing, dividend growth investing
Profile| Send Message|
( followers)

Potential High-Yield ETFs for Dividend Growth Portfolios

I have written several articles covering all (or most) of my thoughts and strategies on dividend growth investing. A quick summary: my portfolio is split into 4 segments as indicated in the pie-chart below.

(click to enlarge)

The Div Gr segment has traditional low yield/high dividend growth stocks. Core has low yield/moderate dividend growth ETFs. Hi Yld has high yield/lower dividend growth stocks (Utilities, REITs, MLPs, Telecoms). Fixed Inc has a variety of stocks, bond funds and ETFs, high yield with little to no dividend growth. The first 3 segments are managed to pre-determined dividend growth and yield requirements. Fixed Inc has no dividend growth requirements. Div Gr and Core are monitored to insure exponential dividend growth, namely, dividend growth rates are essentially constant year-to-year. Hi Yld is monitored for linear dividend growth where annual dividend increases in dollars are approximately equal. During the accumulation phase, the balance between low and high yield is maintained at 50:50 +/- 2%. If a portfolio is to yield an average of 4.5%, it cannot be done with holdings yielding 3%, you need an equal amount yielding 6%. The other two boundaries are more flexible.

A caution to dividend growth investors - you need to re-calibrate your thinking about high yield stocks/ETFs. There, dividend growth will not always be positive. If growth averaged over several years is positive, or even zero, it may well serve the purpose for which it is intended.

My efforts, currently, are to develop a portfolio that will not require a lot of tweaking and can be maintained with a minimum of monitoring. It is my belief that ETFs, chosen properly, will require almost no attention. Dividends will vary to some extent in sync with the underlying economy related to holdings. There is no management guiding hand in ETFs to reduce dividend volatility. The presumption, based on some data, is that in stronger economy years, dividends increase more than they drop in lean years. To smooth out income reductions during recessions, I buy a fixed dollar amount of shares each up-market year in Vanguard Interm-Tm Govt Bd Idx ETF (NASDAQ:VGIT). The amount is based on an assumed 8-year business cycle (6 up, 2 down). This fund was selected because it is commission-free in my online brokerage account. A bond fund was selected because when shares are sold at the bottom of a recession, interest rates are low - share values are high.

I am fairly happy with the low yield side of the portfolio. Recalcitrant stocks can be traded with others in the segment and/or in ETFs in the Core segment. There are more good options there than I have money to spend. The other half of the portfolio is another matter. Higher yielding individual company candidates carry more risk of one kind or another. This article attempts to look at some relatively new high-yield ETFs to see if likely prospects can be found to provide a comparable backup. The objective is to have a portfolio where the two larger segments are cherry-picked specimens of individual companies and the two smaller ones have a broader-based core of similar assets providing long-term income stability. It is the old argument: individual stock selection vs. index fund investment. I am going down both paths.

By reading from mostly SA articles/comments, a list of 13 high-yield relatively new ETFs has been compiled. Dividend growth data are meager as most have been on the market for just 2-3 years.

1) Arrow Dow Jones Global Yield ETF (NYSEARCA:GYLD) - Global Alternative (incl MLPs) (20%); Global Corp Debt (20%); Global Equity (20%); Global Real Estate (incl REITs); Global Sovereign Debt (20%). Pays monthly.

2) First Trust Multi-Asset Diversified Inc (NASDAQ:MDIV) - Div Eq (25%); REITs (20%); MLPs (20%), Pref Sec (20%); Hi Yld Corp Bond ETF (15%). Pays monthly.

3) Global X MLP ETF (NYSEARCA:MLPA) - MLPs (100%).

4) ALPS Alerian MLP ETF (NYSEARCA:AMLP) - MLPs (100%).

5) PowerShares KBW Hi Div Yield Financial (NYSEARCA:KBWD) - Hi Yld Financial incl mREITs, REITS, BDCs, Banks. Pays monthly.

6) SPDR S&P Emerging Markets Dividend (NYSEARCA:EDIV) - Emerging Market Equities (100%).

7) First Trust Intl Multi-Asset Divers Inc (NASDAQ:YDIV) - All non-US; Equity (25%); REITs (20%); Pref Sec (20%); Infrastructure (20%); Fixed Inc (15%); many Canadian stocks. Pays monthly.

8) Global X Super Dividend ETF (NYSEARCA:SDIV) - Global Equities (100%), Pays monthly.

9) ProShares High Yield-Interest Rate Hdgd (BATS:HYHG) - High yield bonds, interest rate hedged. Pays monthly.

10) ALPS Sector Dividend Dogs ETF (NYSEARCA:SDOG) - US Equity value stocks (Dividend Dogs).

11) ALPS International Sector Div Dogs ETF (NYSEARCA:IDOG) - Int Sector value stocks (Dividend Dogs).

12) iShares Mortgage Real Estate Capped (NYSEARCA:REM) - mREITs (100%).

13) SPDR S&P International Dividend (NYSEARCA:DWX) - 9 sectors: Financials (23%); Telecoms (18%); Industrials (13%); Utilities (13); Energy (11%); Mat'ls (9%); Cons Disc (6%); Healthcare (3%); Cons Staples (2%). 100 highest dividend-yielding common stocks & ADRs listed in countries included in Broad Market Index.

All of the above ETFs are equally weighted (give or take) except MLPA, AMLP and REM. The table below shows salient parameters for these ETFs:


Yield %

Div Gr %


Div since

Exp Ratio %

Turnover %

# Holdings

Net Assets







90 stk/60 bd

$89.9 M








$523.0 M








$66.8 M








$7.38 B








$231.9 M








$523.2 M








$5.0 M








$795.7 M







124 bd

$55.8 M








$484.2 M








$78.1 M








$945.6 M








$1.34 B

Sources: First 3 columns (of data): dividend Last 4 columns:

First let me make a comment about Expense Ratios. I know some of you don't want to pay for management. In my opinion, the key question is 'Are you getting added value for these fees?' Note that in the GYLD, MDIV and KBWD cases, which are similar multi-asset portfolios, the higher Expense Ratio ETFs have higher yields. The same is true for MLPA and AMLP, both of which have just MLPs with considerable overlap. Don't forget, yield comes after expenses are paid. The same reasoning goes for taxes paid. Tax regulations state that if MLPs constitute less than 25% of the ETF portfolio, no extra taxes are paid. Since the 2 MLP ETFs have all MLPs, taxes are paid prior to determination of distributions. The double taxation is no worse than for C Corp companies. There may be an advantage in holding these ETFs rather than individual MLPs if (and when) the government decides to eliminate the tax benefits for this type of investment. Prices will certainly take a hit, but maybe not the dividends. The way I look at this is that you throw money over the investing fence and someone throws back dividends. The key is yield (you are buying dividends and selling capital gains) and dividend growth (while you own it).

I like low Turnover Ratios. If you can find an ETF that has acceptable yield and dividend growth, it helps to also have a low turnover. This way they are not churning the portfolio and disrupting dividend flow. As far as the number of holdings is concerned; the more there are, the less any single company can hurt (or help) results. On the other hand; the more holdings there are, the more likely some are less than stellar.

Some of the ETFs listed have relatively small Net Assets. Since these are fairly new to the market, they are still growing. All things considered, a higher Net Asset means the ETF will probable survive long term and have higher daily trading volumes (more liquidity).

For the record: before I started research for this article, I owned REM, SDIV and HYHG in modest amounts. I want to see how they perform in current (and future) conditions. As a result of this research, I have added (modestly), the following:

1) MDIV, I like the multi-asset feature. This may turn into a relatively stable high income holding.

2) EDIV, the price is down due to the world economic recession (buy low, etc.), a little speculation on my part. This may turn out to be a good complement to (or a replacement for) WisdomTree Emerging Markets Equity (NYSEARCA:DEM), Vanguard FTSE Emerging Markets (NYSEARCA:VWO) and iShares Latin America 40 (NYSEARCA:ILF), which I hold in the Core segment.

3) AMLP, even though the Expense Ratio is higher than MLPA, both yield and dividend growth are higher; that plus the vast difference in Net Assets. Can 7 billion dollars be wrong? With all that, plus my contribution, maybe they can lower the management fees. I may be able to reduce my holdings of individual MLPs.

4) SDOG, I am curious to see if this works out for dividend growth investing. It may be feasible to harvest the dividends and take capital gains (if any) at years' end. Of the first 25 in the SDOG portfolio, I own 3 in the Div Gr segment, 4 more are ripe candidates to buy and several more I know have reduced dividend growth due to US economic conditions and are likely to recover better dividend growth characteristics in the future. This ETF features annual reconstitution and quarterly balancing of 5 highest yielding stocks in each of 10 sectors of the S&P 500.

5) DWX, the yield is fine, dividend growth is rocky. I can stand a bumpy road, as long as it goes uphill. As a result of these recent purchases, I will increase the annual purchase amount of my dividend-cut hedge, VGIT (with the understanding I may need it!).

Bear in mind that I am buying these five ETFs in a portfolio segment that has no strict dividend growth requirements.

In the Fixed Income segment, I also have the following ETFs, which with those listed in the above paragraph, will form a core of my high-yield ETFs: SPDR Barclays High Yield Bond (NYSEARCA:JNK); Investco Value Municipal Income (NYSE:IIM); iShares US Real Estate (NYSEARCA:IYR); SPDR Dow Jones Intl Real Estate (NYSEARCA:RWX). I also own in this segment iShares Russell 1000 (NYSEARCA:IWB) and iShares Russell 2000 (NYSEARCA:IWN), but these are considered deferred dividends and not permanent holdings.

I am not recommending the high-yield ETFs listed in this article. They are here for your perusal and due diligence, which (I presume) is more than insuring that you have copied the ETF symbol correctly. The trick here, as I have attempted to do in the Core segment, is to find high-yield ETFs that do not correlate in dividend flow, as opposed to the usual non-correlation in price. That's a twist on asset allocation! As time permits, I will track performance of my purchases, then act accordingly. The search goes on.

Disclosure: I am long MDIV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am long in those ETFs as stated in the article.