Will Dividend ETFs Be Crushed By An Obama Presidency?
-
Font Size:
In the 89th edition of the Festival of Stocks, you'll find a variety of features on dividend investing. Most of them will focus on individual company picks.
For instance, one writer in the "Festival" is fond of Harley Davidson (HOG) because it trades at a discount to its historical P/E average and the company has grown its dividend for 14+ years. Another author recognizes American Capital Strategies (ACAS) for its dividend growth rate and exceptional yield.
Yet there's a more pressing concern for dividend investing in general; that is, investors wonder whether Obama would seek to raise taxes on dividends up from the current level of 15%, and, if that were to happen in an Obama presidency, how might that affect dividend stocks.
Many have already predicted a huge sell-off for stock assets in an Obama presidency. Indeed, Obama has suggested that he would tax dividends at marginal income tax rates and raise the tax rate on long-term capital gains back to 28%. (Keep in mind, what's said on the campaign trail typically stays on the campaign trail.)
What's more, the stock market is not a one-trick pony. It doesn't move higher or lower due to political risks alone. Therefore, it is premature to assume that investors would abandon higher-yielding companies due solely to an increase on the taxes owed for investing in those companies.
It may be more critical to evaluate how an Obama presidency will affect certain segments of the economy. For instance, health care and "old energy" may be easy to dissect; that is, Obama initiatives are likely to target the drug makers for more affordable prescription drugs, while the government might also stake a larger claim to "Big Oil's" profits.
Still, is the demand for oil going to drop off a cliff because our government may ultimately take a bigger chunk of Exxon-Mobil's money? Will the demand for medications disappear, simply because the government will want a bigger piece of pharmaceutical profits? Profit margins for health care and traditional energy would likely drop, but demand may keep investors intrigued.
More importantly, perhaps, families need to invest for their future. It follows that we need to find ways to increase our fortunes... taxation warts and all.
And so it will go with dividends. Regardless of tax policy or business-unfriendly moves, investors are going to want something they can rely on (like dividends).
Here are a number of "Dividend ETFs" that are worthy of the risk-reward relationship:
- WisdomTree Emerging Market High Yield (DEM). I discussed WisdomTree's DEM in detail in Tuesday's column. As long as the U.S. slow-growth environment doesn't become a severe recession, the global growth story will continue. This dividend ETF with an SEC 30-day rolling yield of 5.5% has been less volatile than its emerging market competitors.
- State Street SPDR S&P International Dividend ETF (DWX). This fund tracks an index of 100 companies, each of which had to have 5 years of profitability and earnings growth. It is less expensive at an annual expense of 0.45% than similar international dividend funds. And it pays out a higher annual yield at 7.6% (quarterly). Learn more about DWX from my April commentary.
- iShares Dow Jones Select Dividend Index (DVY). This one represents the 100 highest paying dividend companies, 2/5 of which are financial companies. That has hurt DVY over the last year tremendously. However, DVY now pays a 4.25% yield... far better than treasuries or CDs. (This one appears in my editorial, "The Best Sector ETFs for the the Economic Recovery.")
Even better, Obama is likely to support federal relief for homeowners. In so doing, greater "mortgage loan relief" could stabilize home prices and bring buyers back to real estate. How much would Bank of America (BAC), Wells Fargo (WFC) and JP Morgan Chase (JPM) benefit from an increase in sales volume?
Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.
Get Seeking Alpha Free Stock Alerts by Email!
Get Free Stock Alerts by Email!
-
Editor's Picks
-
Most Popular
- Assurant Is A Compelling Short Sell
- Broadcom Enters FTTH Chipset Market
- Another Macroshares Oil Arbitrage Opportunity
- Freeport McMoran: With Copper Prices Rising, It's Still a Buy
- Oil and the Futures Market
- Three Ways to Cash In on Record Meat and Dairy Prices
- Full list of Editor's Picks »
- High Likelihood of a Market Crash »
- Time To Start Buying Some Dogs? »
- Sirius-XM Combination: A Future Microsoft Acquisition? »
- JP Morgan Offer for Wachovia Makes Sense »
- High-Yield Canadian Royalty Trusts: What's the Catch? »
- Adding to My GE Position »
- 7 Stocks for a High Yield Cash Flow Portfolio »
- Drybulk Shipping: Prepare for a New Record High »
- Nokia: Bargain of a Lifetime - Barron's »
- Top 10 Payout Yield Stocks »
- Wall Street Breakfast: Must-Know News »
-
Long Ideas
-
Short Ideas
-
Cramer's Picks
- Big Lots, Wal-Mart and Costco: 3 Musketeers of the Pooring of America
- What's Behind Hansen's Smackdown?
- The Long Case for China Medical Technologies
- ASA Limited: A Golden Opportunity
- ValueClick: Has the Hunted Become the Hunter?
- Petrohawk and Chesapeake Fly on Haynesville Shale News
- StanCorp a Safe Financial - Cramer's Lightning Round (7/2/08)
- GM on the Skids - Fast Money Recap (7/2/08)
- Three Ways to Cash In on Record Meat and Dairy Prices
- Momentum Stocks Stalled - Cramer's Stop Trading! (7/3/08)
- Full list of Long Ideas »
- Crystal River’s Q2 Write-Downs Could Bankrupt the Company
- Assurant Is A Compelling Short Sell
- Fuel Systems Solutions: Time to Take Profits
- GM an Unlikely Hero - Fast Money Recap (7/1/08)
- Pair Trade Visa and Capital One
- Amazon's Kindle Numbers: All Fluff, Zero Substance
- A. Schulman: Cashless Profits
- Titan Machinery: Doesn't Anybody Look at Valuation?
- Goodrich Petroleum: Gas in the Ground Doesn't Mean Cash in the Bank
- Outlook Remains Grim for MBIA, Ambac
- Full list of Short Ideas »
- StanCorp a Safe Financial - Cramer's Lightning Round (7/2/08)
- Momentum Stocks Stalled - Cramer's Stop Trading! (7/3/08)
- Expecting a Lift for Pediatrix: Cramer's Mad Money (7/3/08)
- The Most Bullish Thing - Cramer's Stop Trading! (7/1/08)
- Exelon's Got Nukes - Cramer's Lightning Round (7/1/08)
- Prescription Prediction for Allscripts - Cramer's Mad Money (7/1/08)
- Rex Marks the Spot - Cramer's Lightning Round, (6/30/08)
- Medicare Bill Buys - Cramer's Mad Money (6/30/08)
- Cracker Bottom of the Barrel - Cramer's Lightning Round (6/27/08)
- Britannia Bulk Rules the Waves - Cramer's Mad Money (6/27/08)
- Full list of Cramers Picks »
Most Popular Feeds
-
ETFs
-
US Market
-
Long Ideas
-
Alt. Energy
- Full list of feeds »
Hedge Fund Jobs
Job Seekers:
- Search jobs by category
- Get job alerts by email or live feed
- Apply online
Employers
- See all recruitment options
- Get applications online or by email




This article has 8 comments:
Worries about a stock selloff because of a change in tax policies are ridiculous.
Thus this article is weak in its argumentation.
What is most likely to happen is that the favorable tax treatment of dividends will be capped, so that small fry will be completely protected and only the biggest players will have to face a higher rate, which is as it should be. It is not the government's role to protect the rich from everybody else, though Bush preaches otherwise.
one) would long only etf's be crushed by any president continuing the current policies?
two) re: "...However, DVY now pays a 4.25% yield... far better than treasuries or CDs." - incorrect, there are many cd's avail right now for up to 4.6% or higher, without risk of capital
thanks
The Wind