The Global X Super Dividend ETF Has Value And A 5.8% Dividend Yield

Jul.29.14 | About: Global X (SDIV)

Summary

SDIV’s yield is attractive for income seeking investors.

SDIV is attractively undervalued as compared to SPDR S&P Dividend ETF.

SDIV is a great way to combine value, high-yield, and diversification under one ticker.

For an investment that pays an above average dividend, investors can consider the Global X Super Dividend ETF (NYSEARCA:SDIV). The ETF's 5.8% dividend yield more than doubles the 2.2% yield paid by the SPDR S&P Dividend ETF (NYSEARCA:SDY). SDIV is a great combination of yield, value, and diversification among many individual global stocks with a reasonable expense ratio of 0.58%.

Holdings

SDIV is comprised of a total of approximately 100 stocks that rank among the highest dividend paying companies in the world according to Solactive AG. The fund uses an indexing strategy designed to replicate the performance of the Solactive Global SuperDividend Index. Since many of the companies in the fund are based outside the U.S., those stocks are subject to the risks associated with those regions, which could include inflation, economic instabilities, political instabilities, etc. However, this risk is spread over 100 stocks, so if one company in the fund loses significant value, it would only account for an average of 1% of the ETF's price. The trade-off for the higher risk is a lower valuation and a high dividend yield. Likewise, investors could take on more risk by owning some of these stocks individually and benefit from the high dividend yields associated with these companies. Those with less risk tolerance would be better off owning the entire fund.

Here is a look at SDIV's top 10 holdings as of 7/25/2014:

% of Fund

Trailing PE

EV/EBITDA

Dividend Yield

Banco do Brasil (OTCPK:BDORY)

1.4%

5.2

N/A

7.5%

AES Tiete (OTCPK:AESAY)

1.24%

6.4

4.17

14.3%

Windstream Holdings (NASDAQ:WIN)

1.23%

32

6.41

9.6%

Cromwell Property Group (CMW.AX)

1.2%

15.5

14.4

6.1%

David Jones (DJS.AX)

1.19%

23

11.08

4.3%

SmarTone Communications (OTC:STTFF)

1.19%

12.9

N/A

4.65%

Frontier Communications (NYSE:FTR)

1.17%

58.7

6.04

7%

Terna (TRN.MI)

1.16%

15.5

10.23

2.6%

Veresen (VSN.TO)

1.14%

47

66

5.1%

Freehold Royalties (FRU.TO)

1.11%

22.5

12.3

6.3%

Click to enlarge

Date Source: globalxfunds.com

It is important to note that many of the companies comprising SDIV trade on exchanges outside of the U.S. Although some of them also trade in the U.S. on the OTC market, there is usually low trading volume for the OTC tickers. Therefore, the fund allows U.S. investors to own a large basket of companies that trade outside the U.S. without the pitfalls of low trading liquidity. I'll also point out that the fund also holds companies that are based in the U.S. For example, Windstream and Frontier Communications are based in the U.S. So, investors are getting a mix of stocks based inside and outside of the U.S. with SDIV.

Here is the Industry Breakdown for SDIV:

Industry Breakdown

Financials

19.97%

REITs

15.16%

Utilities

13.45%

Telecommunications

12.22%

Mortgage REITs

10.65%

Energy

9.18%

Industrials

5.03%

Consumer Discretionary

4.75%

Healthcare

2.82%

Materials

2.7%

Information Technology

2.07%

Click to enlarge

Date Source: globalxfunds.com

Valuation

Many dividend stocks in the S&P 500 are now fairly valued or even richly valued after the market's strong run. SDIV provides investors with a collection of stocks that is undervalued as compared to the S&P 500. Currently, the SPDR S&P 500 (NYSEARCA:SPY) is trading with a trailing PE of 18.7. The SPDR S&P 500 Dividend ETF is trading even higher with a trailing PE of 19.7. SDIV is significantly undervalued as compared to these ETFs with a trailing PE of only 14.3. SDIV is undervalued as compared to the S&P 500 and the dividend aristocrats because many of the stocks comprising the fund are based in countries that have some economic and/or political instability issues. For example, Brazil has an 11% interest rate and a 6.5% inflation rate. The economy in Brazil has slowed down to 0.20% GDP growth last quarter. Europe is still recovering from the debt crisis. All of these things have contributed to keeping the valuations of these countries' stocks lower than U.S. based stocks. SDIV has a little fear of the unknown built into its valuation. The ETF provides investors with a refreshing lower valuation as compared to the S&P 500.

Conclusion

The Global X Super Dividend ETF provides investors with a diversified way to own 100 global companies. Investors can purchase the ETF approximately at its NAV price. The ETF's valuation is attractively below the S&P 500's valuation - so this is where value can be found in today's market. Investors can also reap the benefits of a 5.8% dividend yield to generate income without the risks of individual stock ownership. Overall, SDIV is a great combination of value, yield, and global diversification all under one ticker.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.