Dividend stocks and ETFs have seen a lot of interest this year as investors continue to search for yield in the ultra-low interest environment. This is especially true as the year started off on a soft note for the U.S. economy, though we did see some improvement in Q2.
However, the improvement didn’t last long. Though the corporate earnings picture in Q2 shaped up well, sluggish retail sales, rise in jobless claims and waning consumer confidence minimized the chances of sooner-than-expected rate hikes.
On the global front, the scenario is even worse. Rising tensions between Russia and Ukraine and its impact on global markets, the contraction in the Japanese economy in Q2, deflationary worries in Europe with Italy slipping back again into recession and France and Germany losing momentum are all influencing markets.
Not to mention worries of a slowdown in China and sanctions and counter sanctions between Russia and the West put a firm lid on the global stock markets and brightened the appeal for safe haven assets.
As a result, on August 15, U.S. treasuries surged with 10-year note yields hitting 2.34%, plunging to more-than-one year low levels. Following a contraction in Q2 GDP, Euro-area bonds from Ireland to Greece spiked (per Bloomberg) sending 10-year German bond yields below 1%. Germany’s five-year government bond yield touched an all-time low while the two-year note slipped to a negative yield territory in mid-August (read: 3 Low Risk ETFs for Market Turmoil).
A super-easy monetary policy kept Japan’s 10-year government bonds yield at around 0.50%, the lowest internationally after Switzerland (per Bloomberg). The benchmark U.S. 10-year note yield is forecast to stay below 3% by the year-end.
In such a situation, hunger for yields among investors is justified. If the Fed looks to hike interest rates next year, international dividend picks should make a strong comeback thanks to the hopes for accommodative policy to stay longer.
Most of the high-yield dividends returned smartly this year. Below, we have handpicked three high dividend-yield ETFs (read: Dividend ETFs Explained: What Investors Need to Know).
Each has paid out (or is expected to pay out) at least 4% over a year, thoroughly crushing not only T-Bill yields, but S&P 500 payouts (1.85% yield as of August 15, 2014) as well. So if you are looking for an easy way to add a great deal of income to portfolios via a single ticker, consider any of following ETFs:
Global X SuperDividend ETF (SDIV)
Investors seeking a solid level of current income in this market should invest in SDIV. This ETF yields about 5.8%, much higher than 10-year treasury yield and the S&P 500 yield. However, it is worth noting that SDIV has about 75% exposure in the international market.
SDIV is an equally weighted basket of 100 high yield stocks. With 30% exposure in U.S. equities, the fund also provides access to securities in Europe, Australia, Asia, Canada and Latin America. Among sectors, real estate, financial services, telecommunication and utilities remain the top four choices for the fund. SDIV charges a fee of 58 basis points annually.
SDIV is up 10.9% this year. The fund currently has a Zacks ETF Rank of 3 or Hold rating with a Medium risk outlook.
iShares Asia/Pacific Dividend ETF (DVYA)
For investors interested in the high quality markets of Australia, Hong Kong, Japan, New Zealand, and Singapore with a dividend focus, DVYA is an option. The product targets the Dow Jones Asia/Pacific Select Dividend 30 Index, holding roughly 30 stocks in its basket (read: A Closer Look at New Zealand and Australia ETFs).
The ETF has a heavy holding in Australian companies (53.2%) followed by Hong Kong (16.1%), and Singapore (10.7%) round out the top three. Top sectors include financials (25%), telecoms (22.4%), and industrials (13.2%).
This ETF could be a solid way to tap into the recovering trend of developed markets, with a lower level of risk. The fund has a dividend yield of 5.20% (as of August 15, 2014). The fund has gained about 9.8% so far this year. DVYA has a Zacks ETF Rank #3 with a Medium risk outlook.
EM Dividend High Income ETF (EMHD)
For investors interested in emerging markets with a dividend focus, EMHD is a fascinating play. Given that many emerging markets are now back on track and the possibility of a rate hike in the U.S. is not as ripe as it was a few months ago, there are less worries in the horizon for emerging markets.
The ETF is heavy on Brazil with about 20% exposure followed by China (18.8%) and Turkey (16.1%). Financials is the top sector in the fund with about 20% focus while materials and utilities hold 19.4% and 14.4%, respectively. The fund is almost equally-distributed among individual companies thus ruling out company-specific concentration risks.
EMHD currently has a Zacks ETF Rank of 3 with a Medium risk outlook. EMHD has a dividend yield of 4.89% (as of August 15, 2014) while it has added 7.47% on a year-to-date basis (read: Emerging Market ETFs in Focus on MSCI Index Review).
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