10 ETFs With the Largest Projected Dividend Declines Ahead

by: Michael Krause

By the end of this year, S&P500 earnings will have returned to their long-run trend line since 1950. This means that for corporate profits at least, the recession is over. During the downturn, many firms had to cut dividends, especially in the financial sector. But by next year, dividends should be growing nicely again, up 8.6% for firms in the S&P500 SPDR (NYSEARCA:SPY), 12.6% for firms in the iShares MSCI EAFE fund (NYSEARCA:EFA) and 16.1% for those that make up the iShares MSCI Emerging Markets fund (NYSEARCA:EEM).

But there are still some areas of weakness. The chart below shows the ETFs with the largest projected declines in dividends per share next year, using current consensus estimates for each fund's constituents. The list is an eclectic one, including both growth and value funds; cyclical and defensive names; small caps and large caps. Few however appear to be "deep value" portraits of an industry still struggling but with bargain valuations: 7 out of the 10 funds have an ALTAR ScoreTM--our rating of an ETF's overall investment merit--below that for the S&P500.

The dividend cuts and below-average ALTAR ScoresTM combined suggest that most of these funds are neither timely nor particular bargains. However the largest and, in our opinion, most interesting fund on the list, the iShares Dow Jones Aerospace & Defense fund (BATS:ITA) rates equal to the overall S&P500, and is the subject of this week's Fund Focus.

Chart: Dividends in danger

Projected decline in dividends per share, 2010-11E (Click to enlarge)

Source: ETF Research Center

Table: Ticker, fund name & ALTAR Score™ of ETFs in above chart.

Ticker Name


ENY-OLD Guggenheim Canadian Energy Income 7.0%
PMR PowerShares Dynamic Retail 5.4%
RWV RevenueShares Navellier Overall A-100 3.4%
ITA iShares Dow Jones Aerospace & Defense 7.7%
PWJ PowerShares Dynamic MidCap Growth 4.5%
GULF WisdomTree Middle East Dividend 12.8%
PJM PowerShares Dynamic Small Cap 6.0%
LVL Claymore/S&P Global Dividend 9.8%
RZV Rydex S&P Smallcap 600 Pure Value 4.9%
FXR First Trust Indstrials/Producer Durables 5.6%

Disclosure: No positions

Note: This is an excerpt from our weekly newsletter, ETF Spotlight, which can be downloaded here.