Getting All Your Dividend Exposure in a Single ETF: Three Global Options

Includes: DEM, DEW, DGS, FGD, LVL
by: Michael Johnston

The proliferation of U.S.-listed ETFs in recent years has simplified the asset allocation process for investors, making it easier than ever to execute various types of strategies in a cost-efficient and low-maintenance manner. Investors interested in focusing their equity exposure around stocks that exhibit low pricing multiples and attractive dividend yields, for example, have no shortage of funds linked to indexes consistent with a value strategy.

There are more than three dozen ETFs focusing on large cap value equities traded in U.S., with several more focusing on the mid cap value and small cap value segments of the market. Beyond the U.S. borders options aren’t nearly as numerous, but there are still plenty of choices. There are also a handful of ETFs that combine U.S. and international markets, providing one-stop global exposure to dividend-paying companies that tend to exhibit characteristics of a value strategy:

WisdomTree Global Equity Income Fund (NYSEARCA:DEW)

This ETF is perhaps the most broad of WisdomTree’s suite of dividend-weighted products, seeking to replicate a fundamentally-weighted index that includes high dividend-yielding companies from the U.S., developed markets, and emerging markets. The WisdomTree Global Equity Income Index includes more than 550 individual stocks, with a heavy tilt towards large cap equities. The dividend yield on the benchmark to which DEW is linked recently stood at about 5.2%, with a price-to-earnings ratio in the neighborhood of 14 times and a price-to-cash flow metric of less than 8 times. DEW allocates about 20% of its assets to the U.S., and gives a relatively minor weighting of about 10% to emerging markets.

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Guggenheim S&P Global Dividend Opportunities Index ETF (NYSEARCA:LVL)

This ETF seeks to replicate the S&P Global Dividend Opportunities Index, a benchmark that consists of about 100 global equities. The underlying index employs a yield-driven weighting scheme that weights the highest yielding stocks most heavily. Potential components that meet stability and investability criteria are ranked based on annual dividend yield–excluding special and extraordinary dividends–and the highest-yielding stocks are selected for inclusion. There are a few restrictions imposed: no single country or sector can have a weighting of more than 25% upon rebalancing, and emerging markets exposure is limited to 10% of total assets.

U.S. equities account for nearly the maximum allowed to any one country (25%), followed by Spain, Australia, and Canada. The financial sector makes up the biggest slug of assets at close to 24%, followed by telecom, utilities, and industrial materials.

Dow Jones Global Select Dividend Index Fund (NYSEARCA:FGD)

This ETF seeks to replicate the Dow Jones Global Select Dividend Index, a benchmark consisting of about 100 dividend-paying stocks from both developed and emerging markets. In order to be eligible for inclusion in the underlying index, stocks must: 1) pay a current dividend, 2) have a current year dividend-per-share ratio greater than its five year average, 3) have a five-year average payout ratio of less than 60% for U.S. and European stocks and 80% for all other countries, and 4) have a minimum three-month daily average trading volume of $3 million. From there, stocks meeting eligibility criteria are ranked by dividend yield, and the top 100 highest dividend-yielding stocks are included in the index.

FGD currently has a weighting of about 20% to the U.S., and is almost entirely allocated to developed markets. From a sector perspective, the largest allocations are made to utilities, telecom, industrial materials, and financials–hardly surprising considering the methodology used to construct the underlying index.

Filling In The Holes

Though each of the funds highlighted above are global in nature, benchmarks focusing on companies offering high dividend yields will often exhibit a bias towards developed market securities. So for investors looking to use a dividend-focused fund for global equity exposure, it’s worth noting that the options presented above are all relatively light on emerging markets–though not necessarily any more so than other global equity ETFs.

Fortunately, there are a couple of funds out there that might function nicely as complements to the “global” dividend ETFs highlighted above:

  • WisdomTree Emerging Markets Equity Income Fund (NYSEARCA:DEM): This fund is linked to a dividend-weighted index that focuses primarily on large cap equities in emerging markets. The index underlying DEM features a dividend yield of close to 6%, while the ETF offers a 30-day SEC yield of nearly 5%.
  • WisdomTree Emerging Markets SmallCap Dividend Fund (NYSEARCA:DGS): As the name suggests, this ETF focuses in on small cap dividend-paying equities in emerging markets–an asset class that is generally overlooked by most broad-based global funds and generally receives only minimal allocations in portfolios.

For investors bullish on the outlook for dividend-paying equities, the aforementioned funds can be utilized to create a stock portfolio that features exposure to both developed and emerging markets around the world with a tilt towards stocks that deliver more attractive current returns than the rest of the Global Equities ETFdb Category.

Disclosure: No positions at time of writing.

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