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High-Dividend ETFs

Dividend Paying Exchange-Traded-Funds

Given the recent tech stock volatility, this might be a good time to consider something a little less scary; high-dividend ETFs, for instance.

Although you’re probably familiar with exchange-traded-funds (ETFs), you might not know that, some of them focus on dividend-paying stocks, and many pay significant dividend yields. 

Dividend yield (next 12-month’s dividends divided by the price you pay for the shares) is somewhat analogous to the interest that you receive on money market funds or bank CDs, except, of course, with an ETF, your principal (share price) is not insured by the U.S. government, so you could lose money in a market downturn.

However, most banks are paying less than 1% interest, but more than 100 ETFs are paying at least 4% yields. In fact, more than 10 are paying double-digit yields. But, you can’t pick ETFs based on dividends alone. A 10% return doesn’t mean much if the share price drops 20%.

Screen for High-Dividend ETFs
To mitigate those risks, I used the Funds Screener available on the Reuters site, which allows you to select ETFs based on Lipper ratings. Lipper, which traces its history back to 1973, publishes a variety of performance ratings on conventional mutual funds and ETFs. Here’s how I built the screen, in case you want to run it yourself. Otherwise, skip down to the recommended list of ETFs near the bottom.

Get to the screener from Reuters home page (reuters.com) by selecting Markets Home, More Topics, Funds, and finally, Funds & ETF Screener.  

Set Up Your Screen
Highlight the ETF box in the Fund Universe selection area to limit your search to the ETFs tracked by Lipper Research. Delete the selection criteria listed in the default screen and then select Add More Criteria.

Use the Add Criteria buttons to select Current Dividend Yield in the Profile category, Five-Year Total Return in the Total Return Performance category, and Consistent Return in the Lipper Leaders section.

Then select rating levels four and five for Consistent Return to limit your list to the ETFs with the most consistent (least volatile) year-to-year returns. Then set up the screen to on the highest yielding funds by selecting 15% (15 >) or higher for Five-Year Total Return. Finally select 4% or greater (4 >) for Current Dividend Yield to limit your list to the highest yielding ETFs.

Select View Results and then click on the Dividend Yield header until Reuters displays the highest yielding ETFs at the top.

Five Worth Considering
Here are the highest yielding ETFs when I ran the screen. To improve diversification, I only included one fund focusing on any particular market segment. Also, Reuters listed one ETN (Exchange-traded notes) which I didn’t include. ETNs are similar to ETFs except that they don’t actually own shares of the stocks they’re tracking. Thus, as a group, ETNs are riskier than ETFs.  

PS Global P.E.
Power Shares Global Listed Private Equity (PSP) tracks firms that invest in privately held companies including Business Development Companies. Has returned 21%, on average, annually, over the past five-years. Dividend yield is 13.7%.

iS Intl. Real Estate
iShares International Developed Real Estate (IFGL) tracks real estate investment trusts (REITs) that own properties outside the U.S., mostly in Japan, Hong Kong, Australia and the U.K. Five-year average annual return is 15%. Dividends vary from quarter to quarter, 12.0% yield.

SPDR High Yield Bond
SPDR Barclays High Yield Bond (JNK) holds mostly non-investment grade (junk) bonds issued by U.S. corporations. Five-year average annual return is 15%. Pays monthly dividends, 5.9% yield.

iS Intl. Select Dividend
iShares International Select Dividend (IDV) tracks high-dividend paying corporations headquartered outside the U.S., mostly in Australia, the U.K., and France. Five-year average annual return 19.0%. Dividends vary from quarter to quarter, 4.7% yield.

FT Global Select
First Trust Dow Jones Global Select Dividend (FGD) holds dividend-paying corporations around the world, but mostly in the U.S., Australia, and the U.K. Five-year average annual return 20.5%. Dividends vary from quarter to quarter, 4.4% yield.

Investing in ETFs requires keeping up with the news. Sell when the outlook diminishes for an ETF’s business sector.

published 4/18/14

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