PEY is an index for Mergent Dividend Achievers. Mergent uses a proprietary methodology to pick out the top 50 highest dividend paying stocks. Companies must have increased their dividends 10 years in a row. The dividends are paid to shareholders on a monthly basis. Each quarter, the list of stocks are rebalanced.
This index greatly reduces trading cost, since you don't have to go out and buy the top 50 dividend stocks. The monthly dividend payment will help ease personal cashflow.
I am a big fan of Mergent. I believe in their methodology. Personally, I would not buy a company with less than 10 years in history. If a company can increase dividends in this recessionary environment, they must be doing something right.
Currently, PEY is lagging the market. Cyclical stocks had a big rally that left many blue chips in the dust. Investors are looking for green shoots and looking for a quick rebound in economy. If the economy does rebound quickly in a V shape pattern, then their plays are dead on. However, in my view, the recession will drag on into 2010 and probably fully recover in 4 to 5 years. During that time, the dividends can help ride the doldrums out. On top of that, the top 50 stocks are financially very strong, and it is matter of time before the rally catches up to PEY.
There have been many great observations on this ETF. However, raising dividends does not always transfer to higher stock prices. GM used to pay a great dividend. I am hopeful that PEY does well, but do not let this ETF be more than 5% of your entire portfolio.
"raising dividends does not always translate into rising stock prices"
This may be true at certain times for certain stocks.
However, do not miss out on the main goal of dividend growth investing.
That goal is to create an income stream that will increase over the years.
Good luck, UCS
I think 5% is really a low percentage to limit yourself to. I think where people tend to get in trouble is when they allocate more than 15-20% on a paticular stock. Plus so much depends on where you are with your saving; a young investor who doesn't have much should probably just accumulate positions and nt worry about being properly diversified as a % of the total until he has a decent portfolio.
The risk is also mitigated with concentrating too much on on one stock with an ETF such as this where it holds a great number of equities.
Me, I have probably doubled up on a lot of equities held by this fund, but my strategy is somewhat different than others. I use my 401k for small stocks and some fixed income positions (typically in my roth 401k to avoid tax implications) and use my main portfolio for tracking and accumulating drip plan investments in large stocks.
Though it si a good idea to be diversified, I would personally think 5% is low and think this risk is mitigated with an etf with many holdings.
Have you considered VIG? or some closed end funds BDV or ADK? very nice yields and certainly less of a laggard than PEY. I do like the PEY methodology of rebalancing. Any other dividend archivers you know of or just good income generators!
Other popular dividend paying indices are DVY and SPD. I looked at the past 6 months, and PEY has really outperformed most stocks. I compared it to DVY, SPD, SPY, DIA and it has beat them all. I haven't heard of VIG before. How does Vanguard arrive at the methodology? I use price to book ratio to compare the dividend ETFs. PEY seems to be the cheapest with the highest yield.
I assume most dividend paying stocks are older, more mature industries holding real assets. AGG is a bond etf that pays monthly dividends (may want to check it out), but I think it is the beginning of a bull market for equities, so I'm 70% equities, and 30% cash (in case I have repairs to make for my house or car).
FYI, the comparison chart:
I'm contemplating about getting another $5000 worth of PEY. Bought my first lot at around $6.00. Returned about 15% capital appreciation, but I haven't even received my dividends yet. All the losers have dropped out of the index. Cash is king, and PEY will provide lots of it from dividend consistent paying stocks with ten years of dividend increases.
Another thing I like about this etf is there are no interests whatsoever. Look at this. The conversation has been entirely between you and me.
Thanks for the tip. Just signed up for the DRIP plan. It's free of charge. I'm going to build my position to about $10,000. Have about $5,000 worth of this. Bought the Mergent Dividend Achievers on Amazon a while back for a buck or two. Really liked the idea. PEY comes with a twist in that it selects the highest 50 yielding stocks. Basically, companies that fail have pretty much failed, and companies that cut dividends have cut and are dropped out of this index. Only the strongest companies are left. IMO, we're entering into an uptrend market. High yield stocks are indicative of undervaluation. I can see PEY trending higher as more investors jump on the bandwagon to collect the dividends.
I am a holder in PEY as well. i think the fear is that the Companies held in PEY...whether they have a ten year history or not, will cut dividencs further. Which would lead to an additional cut in PEY's dividend.
I don't think this will be the case and have PEY in a DRIP plan. I'm hoing for compounding and growing returns. Given a five- ten year prospective, I think I can develop a formidable monthly income stream with this one.
All part of a lofty dream of retiring by 40!
If you want to retire by 40, you'll need a substantial portfolio as things just keep getting more expensive, while wages remain relatively stagnant (at least for me). I want to show you below that if your portfolio reaches a certain size, it's actually cheaper to go out and buy individual stocks.
PEY has an expense ratio of 0.60%. The fund holdings have 50 stocks. Assume you went out to acquire all 50 stocks and each buy or sell commission is $10, you would incur $500 ($10 x 50). ETFs are known for their tax efficiency and low cost expense ratios. I like to think about each ETF based on the break even expense ratio. The break even portfolio for you would be ($50 x 10) / 0.006 = $83,333.33.
In other words, if your portfolio exceeds $83,333.33, the commissions you incur will be less than the expense ratio of 0.60%. I'm assuming the worst case scenario that there are 50 transactions per year. The turnover rate is probably lower. If we assume half the turnover of 50, then your ideal break even portfolio would be $25 x 10 / 0.006 = $41,666.67. As you can see, after a certain portfolio size, it's cheaper to just go out and buy the stock on your own. For retirement, that size would be much bigger than the 40k or 80k proposed.
Of course, the above neglects slippage points and also the time devoted to buying each stock or following the changes to the index. ETF is much easier when it comes to tax reporting. Buying and selling 50 stocks and then adding up all the dividends would be a royal pain in the rear at tax time. The only advantage to buying your own stocks is if you want to track the index but your porfolio is very large, and you can save a lot more on expense ratio.