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This posting features a comprehensive review of the established dividend ETF sector. In this view we feature those dividend related ETFs that have a much more aggressive focus on dividends and yield versus more established sectors. Sometimes the focus on dividends to exclusion of other considerations can lead to trouble. Some of the higher yielding ETFs that follow are sourced from more volatile areas of the world and may focus on troubled sectors like financials where reliability of the dividend stream may be questioned.

That said, there is a rapidly expanding list of ETFs from which to choose. This is occasioned in part by equity market volatility leading investors to perceived safer havens. Of perhaps a greater impact is the low levels of yields available from traditional sources like bonds. Low interest rates have combined with current aging demographics where demand for income is greatest. To simplify matters for investors we’ve whittled choices down to 10. The issues chosen represent a broad cross section of domestic, global, overseas, real estate (REITs) and other sectors from a variety of sponsors. Hopefully, reducing the list will make sorting through the sector more manageable for most investors.

Within each category we filter them by placing importance on high assets under management, liquidity and/or strategies that make a difference in the most critical tests. Newer issues tied to new indexes with long (over five years) of historical data may be worth investigating, featuring and using as alternatives if necessary.

Remember just searching for the highest dividend yields can lead to troubled sectors where the ability to maintain the dividend may become questionable.

We rank the top 10 ETFs by our proprietary stars system as outlined below.

Strong established linked index

Excellent consistent performance and index tracking

Low fee structure

Strong portfolio suitability

Excellent liquidity

Established linked index even if “enhanced”

Good performance or more volatile if “enhanced” index

Average to higher fee structure

Good portfolio suitability or more active management if “enhanced” index

Decent liquidity

Enhanced or seasoned index

Less consistent performance and more volatile

Fees higher than average

Portfolio suitability would need more active trading

Average to below average liquidity

Index is new

Issue is new and needs seasoning

Fees are high

Portfolio suitability also needs seasoning

Liquidity below average

We feature a technical view of conditions from monthly chart views. Simplistically, we recommend longer-term investors stay on the right side of the 12 month simple moving average. When prices are above the moving average, stay long, and when below remain in cash or short. Some more interested in a fundamental approach may not care so much about technical issues, preferring instead to buy when prices are perceived as low and sell for other reasons when high. But this is not our approach.

#1: SPDR Wells Fargo Preferred Stock ETF (NYSEARCA:PSK)

PSK follows the Wells Fargo Hybrid and Preferred Securities Aggregate Index, a modified market capitalization weighted index composed of preferred stock and securities that are functionally equivalent to preferred stock including, but not limited to, depositary preferred securities, perpetual subordinated debt and certain securities issued by banks and other financial institutions that are eligible for capital treatment with respect to such instruments akin to that received for issuance of straight preferred stock. The fund was launched in September 2009. The expense ratio is .45%. AUM (Assets under Management) equal $124M and average daily trading volume is 17K shares. As of mid-September 2011 the annual dividend yield was 6.20% and YTD return was 1.73%.

PSK Top Ten Holdings and Weightings

Data as of December, 2011

  1. Barclays Bank plc (BCS.PD): 2.43%
  2. Hsbc Hldgs Pfd: 2.28%
  3. Credit Suisse Guernsey Brh Pfd: 1.81%
  4. Wells Fargo & Co, San Francisco Ca Pfd: 1.80%
  5. Metlife Pfd: 1.72%
  6. Ing Groep N V Pfd: 1.56%
  7. Deutsche Bk Contingent Cap Tr Iii Pfd: 1.55%
  8. Goldman Sachs Grp Pfd: 1.47%
  9. At&T Pfd: 1.46%
  10. Comcast Corp New Pfd: 1.30%

#2: iShares S&P U.S. Preferred Stock ETF (NYSEARCA:PFF)

PFF follows the S&P Preferred Stock Index which seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P U.S. Preferred Stock Index. The fund was launched in March 2007. The expense ratio is .48%. AUM equal $7 billion and average daily trading volume exceeds 1.2M shares. As of mid-December 2011 the annual yield was 6.98% and YTD return -1.17%.

PFF Top Ten Holdings and Weightings

Data as of December, 2011

  1. General Mtrs Cv: 2.71%
  2. Hsbc Hldgs Pfd: 2.52%
  3. Barclays Bank plc (BCS.PD): 1.73%
  4. Wells Fargo & Co, San Francisco Ca Pfd: 1.52%
  5. Bk Amer Pfd: 1.50%
  6. Citigroup Cap Xiii Pfd: 1.49%
  7. Citigroup Cap Xii Pfd: 1.47%
  8. Hsbc Hldgs Pfd: 1.42%
  9. Gmac Cap Tr I Pfd: 1.30%
  10. Metlife Pfd: 1.28%

#3: JP Morgan Alerian MLP ETN (NYSEARCA:AMJ)

AMJ follows the Alerian MLP Index, a market-cap weighted, float-adjusted index created to provide a comprehensive benchmark for investors to track the performance of the energy MLP sector. The majority of MLPs currently operate in the energy infrastructure industry, owning assets such as pipelines that transport crude oil, natural gas and other refined petroleum products. The fund was launched in April 2009. The expense ratio is high at .85%. AUM equal $3.2 billion and average daily trading volume is 1.2M shares. As of mid-December 2011 the annual dividend yield was 5.09% and YTD return was 8.52%.

AMJ TOP 10 Holdings and Weightings

Data as of December, 2011

1. Enterprise Products Partners LP (NYSE:EPD) 13.45%

2. Kinder Morgan Energy Partners LP (NYSE:KMP) 11.94%

3. Plains All-American Pipeline LP (NYSE:PAA) 6.06%

4. Energy Transfer Partners LP (NYSE:ETP) 5.75%

5. Magellan Midstream Partners LP (NYSE:MMP) 4.75%

6. Kinder Morgan Management LLC (NYSE:KMR) 4.35%

7. Enbridge Energy Partners LP (NYSE:EEP) 3.79%

8. Energy Transfer Equity (NYSE:ETE) 3.68%

9. Oneok Parners LP (NYSE:OKS) 3.60%

10. Linn Energy LLC (NASDAQ:LINE) 3.42%

#4: Alerian MLP ETF (NYSEARCA:AMLP)

AMLP Alerian MLP Infrastructure Index is designed to give investors exposure to the infrastructure component of the Master Limited Partnership asset class. Constituents each earn at least 50% of EBITDA from assets that are not directly exposed to changes in commodity prices. The index is disseminated by the New York Stock Exchange and is a composite of 25 energy infrastructure MLPs. The fund was launched in August 2008. The expense ratio is also high at .85%. AUM equal $1.7 billion and average daily trading volume is just under 1M shares. As of mid-December 2011 the annual dividend yield was 4.65% and YTD return 5.31%.

AMLP Top Ten Holdings and Weightings

Data as of December, 2011

  1. Kinder Morgan Energy Partners LP (KMP): 9.56%
  2. Enterprise Products Partners LP (EPD): 9.49%
  3. Magellan Midstream Partners, L.P. (MMP): 7.20%
  4. Plains All American Pipeline LP (PAA): 6.92%
  5. Energy Transfer Partners, L.P. (ETP): 6.63%
  6. Buckeye Partners, L.P. (NYSE:BPL): 6.46%
  7. ONEOK Partners, L.P. (OKS): 5.18%
  8. Williams Partners LP (NYSE:WPZ): 4.88%
  9. El Paso Pipeline Partners LP (NYSE:EPB): 4.69%
  10. MarkWest Energy Partners LP (NYSE:MWE): 4.67%

#5: PowerShares Financial Preferred ETF (NYSEARCA:PGF)

PGF follows the Wachovia Hybrid and Preferred Securities Financial Index which tracks the performance of U.S. listed preferred stocks of preferred stocks issued in the U.S. market by financial institutions and currently includes approximately 30 securities selected by Wachovia pursuant to a proprietary selection methodology. The fund was launched in December 2006. The expense ratio is .60%. AUM equal $1.4 billion and average daily trading volume is 370K shares. As of mid-December 2011 the annual yield was 7.39% and YTD return was -.55%.

PGF Top Ten Holdings and Weightings

Data as of December, 2011

  1. Hsbc Hldgs Pfd: 10.26%
  2. Bk Amer Pfd: 7.22%
  3. Hsbc Hldgs Pfd: 6.04%
  4. Ing Groep N V Pfd: 5.22%
  5. Jpmorgan Chase Pfd: 4.88%
  6. Wells Fargo & Co, San Francisco Ca Pfd: 4.86%
  7. Metlife Pfd: 4.72%
  8. Credit Suisse Guernsey Brh Pfd: 4.61%
  9. Bk Amer Pfd: 4.48%
  10. Ing Groep Nv Pfd: 3.49%

#6: SPDR DJ Global Real Estate ETF (NYSEARCA:RWO)

RWO follows the Dow Jones Global Select Real Estate Securities Index which is a float-adjusted market capitalization index designed to measure the performance of publicly traded real estate securities in developed and emerging countries. The Index is a measure of the types of global real estate securities that represent the ownership and operation of commercial or residential real estate. The fund was launched in May 2008. The expense ratio is .50%. AUM equal $306 million and average daily trading volume is 80K shares. As of mid-December 2011 the annual dividend yield was 7.65% and YTD return was -4.18%.

RWO Top Ten Holdings and Weightings

Data as of December, 2011

  1. Simon Property Group Inc (NYSE:SPG): 6.17%
  2. Unibail-Rodamco SE (NYSE:UL): 3.02%
  3. Public Storage (NYSE:PSA): 2.99%
  4. Westfield Group (NASDAQ:WDC): 2.85%
  5. Equity Residential (NYSE:EQR): 2.84%
  6. Brookfield Asset Management, Inc. (NYSE:BAM): 2.66%
  7. HCP Inc (NYSE:HCP): 2.65%
  8. Vornado Realty Trust Shs of Benef Int (NYSE:VNO): 2.50%
  9. Mitsui Fudosan Co., Ltd. (8801): 2.45%
  10. Ventas Inc (NYSE:VTR): 2.39%

#7: WisdomTree Australia Dividend ETF (NYSEARCA:AUSE)

AUSE follows the WisdomTree Australia Dividend Index, a fundamentally weighted index that measures the performance of high-dividend yielding companies in Australia. The index is comprised of dividend paying companies incorporated in Australia with a minimum market capitalization of $1.0 billion. The index is comprised of the 10 largest qualifying companies from each sector ranked by market capitalization. The fund was launched in June 2006. The expense ratio is .58%. AUM equal $54 million and average daily trading volume is low at 7K shares. As of mid-December 2011 the annual dividend yield was 6.58% and YTD return was -5.35%.

AUSE Top Ten Holdings and Weightings

Data as of December, 2011

  1. Telstra Corp Ltd (OTCPK:TTRAF): 4.00%
  2. Foster's Group Limited (NYSE:FGL): 3.18%
  3. Myer Holdings Limited (MYR): 3.14%
  4. Metcash Limited (NYSE:MTS): 2.98%
  5. Westpac Banking Corp (NYSE:WBC): 2.98%
  6. Australia & New Zealand Banking Grp Ltd. (OTCPK:ANEWF): 2.65%
  7. David Jones Limited (DJS): 2.57%
  8. QBE Insurance Group Ltd (QBE): 2.52%
  9. Commonwealth Bank of Australia (NYSE:CBA): 2.50%
  10. National Australia Bank Limited (NAB): 2.50%

#8: WisdomTree International Dividend ex-Financials ETF (NYSEARCA:DOO)

DOO follows the WisdomTree International Dividend ex-Financials Index that measures the performance of high dividend-yielding international stocks outside the financial sector. The index consists primarily of large- and mid-capitalization companies incorporated in Europe, Japan, Australia, New Zealand, Hong Kong and Singapore that pass WisdomTree Investments' market capitalization, liquidity and selection requirements. The fund was launched in June 2006. The expense ratio is .58%. AUM equal $250 million and average daily trading volume is 133K shares. As of mid-December 2011 the annual dividend yield was 4.60% and YTD return was -5.02%.

DOO Top Ten Holdings and Weightings

Data as of December, 2011

  1. Telstra Corp Ltd (OTCPK:TTRAF): 3.24%
  2. Foster's Group Limited (FGL): 2.40%
  3. Nokia Oyj (NOK1V): 2.26%
  4. Telefonica SA (NYSE:TEF): 1.95%
  5. Belgacom SA (BELG): 1.94%
  6. France Telecom SA (FTE): 1.92%
  7. Koninklijke (Royal) KPN NV (KPN): 1.72%
  8. Rwe AG (RWE): 1.64%
  9. E.ON Aktiengesellschaft (EOAN): 1.62%
  10. Vodafone Group PLC (OTCPK:VODPF): 1.59%

#9: WisdomTree DEFA High-Yielding ETF (NYSEARCA:DTH)

DTH follows the WisdomTree DEFA Equity Income Index, a fundamentally weighted Index that measures the performance of companies with high dividend yields selected from the WisdomTree DEFA Index. At the index measurement date, companies within the WisdomTree DEFA Index with market capitalizations of at least $200 million and average daily trading volumes of at least $200,000 for the prior three months are ranked by dividend yield. The fund was launched in June 2006. The expense ratio is .58%. AUM equal $140 million and average daily trading volume is 21K shares. As of mid-December 2011 the annual dividend yield was 5.26% and YTD return was -4.67%.

DTH Top Ten Holdings and Weightings

Data as of December, 2011

  1. Vodafone Group PLC (OTCPK:VODPF): 2.89%
  2. Telefonica SA (TEF): 2.84%
  3. China Mobile Ltd. (00941): 2.74%
  4. Total SA (FP): 2.48%
  5. Westpac Banking Corp (WBC): 2.29%
  6. Commonwealth Bank of Australia (CBA): 2.28%
  7. GlaxoSmithKline PLC (OTCQB:GLAXF): 2.19%
  8. HSBC Holdings PLC (OTCPK:HBCYF): 2.10%
  9. Novartis AG (OTCQB:NVSEF): 2.05%
  10. Banco Santander SA (NYSE:SAN): 1.93%

#10: Global X Canada Preferred ETF (NYSEARCA:CNPF)

CNPF follows the Solactive Canada Preferred Index which tracks the performance of a select group of preferred stocks from Canadian issues that trade on the TSE. The Underlying Index is comprised of preferred shares that meet certain criteria relating to size, liquidity, issuer rating, maturity and other requirements as determined by Structured Solutions AG. The fund launched quite recently in May 2011. The expense ratio is .58%. AUM are only at $10 million and average daily trading volume is less than 12K shares. As of mid-December it’s difficult to gauge the annual dividend yield. The fund states the 30 day SEC Yield at 9.54% and the distribution yield at 5.35%. The YTD return is -14.41%.

CNPF Top Ten Holdings and Weightings

Data as of December, 2011

  1. Transcanada Pfd: 3.81%
  2. CIBC Pfd: 3.04%
  3. Manulife Finl Pfd: 2.90%
  4. RBC NCP 1st-AV: 2.88%
  5. Bank of Montreal Pfd: 2.85%
  6. Royal Bank Of Canada: 2.78%
  7. CIBC Pfd: 2.68%
  8. Husky Engy Pfd: 2.59%
  9. Transalta Pfd: 2.55%
  10. Toronto Dominion Bank Pfd: 2.52%

We’ve tried to provide an assortment of ETFs within the high yield space where those heavily weighted by the financial sector are mixed with energy and international. We would recommend investors use an assortment of issues to avoid undue concentration where any one sector is featured. This would reduce risk.

Given the overall demographics of the investing public and tone of markets there will be an ongoing demand for ETFs with yield. Some newer entries include IPFF (iShares International Preferred ETF) and SDIV (Global X Super Dividend ETF), both recent launches.

It’s important to remember that ETF sponsors have their own competitive business interests when issuing products which may not necessarily align with your investment needs. New ETFs from highly regarded and substantial new providers are also being issued. These may include Charles Schwab’s ETFs and Scottrade’s Focus Shares which both are issuing new ETFs with low expense ratios and commission free trading at their respective firms. These may also become popular as they become seasoned.

You may address any feedback to: feedback@etfdigest.com.

Disclosure: The ETF Digest has no current positions in the featured ETFs. Source for data is from ETF sponsors and various ETF data providers.

Source: Top 10 High Yield Dividend ETFs