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Low P/E High Dividend ETFs to Wait Out Yellen & Brexit

Dividend investing is among the very few investing themes that have outperformed this year which has so far seen the heights of uncertainty. Wall Street suffered the worst start ever to a year (read: 7 Top Market-Beating Dividend ETFs to Buy Now).

Overall, a moderation in U.S. growth, China-led global market crisis, upheaval in oil prices especially in the initial phase of the year and the much-talked about Brexit referendum have kept high risk securities on the edge, barring some occasional relief rallies.

Both the World Bank and the International Monetary Fund (IMF) have slashed their global growth forecast for the second time for this year. For obvious reasons, a drive for safety boosted the demand for U.S. treasuries, bringing down the benchmark 10-year U.S. Treasury bond yields to 1.69% on June 22, 2016.

Though the U.S. economy heaved a sigh of relief to start Q2, thanks to an oil price recovery on easing supply glut concerns and a host of upbeat economic readings, the respite proved to be short-lived.The labor market started to lose steam from April and shockingly downbeat May data made matters worse.

Fed React to Weak Job Data

Quite expectedly, this piece of information was strong enough to keep Fed, which had opted for a liftoff in December 2015 first time in about a decade, on the dovish mode. Not only this, the Fed reduced its 2016 GDP estimate to 2% from 2.2%. This is the second time this year that the Fed has slashed the U.S. GDP estimate for 2016 from 2.4% projected in December.

The Fed also lowered the number of potential hikes in 2017 and 2018 from four to three. It also pared the estimate for the funds rate for 2017 to 1.6% from the 1.9% projection in March. In fact, the Fed funds rate for the long run was slashed to 3% from 3.3%.

Yellen: Overpriced U.S. Stocks

If this was not enough, Yellen noted that U.S. stocks are pricey at the current level. As per Fed, “forward price-to-earnings ratios for equities have increased to a level well above their median of the past three decades.” And Yellen also indicated that a prolonged low-rate environment has inflated asset prices. No wonder, this comment puts undervalued stocks and ETFs in focus for future trading.

Fed to Opt Cautious Stance Ahead

Since the Fed chief’s recent comments hint that the central bank is no hurry to hike rates ahead and will likely wait until the U.S. economy shows clear signs of improvement, most importantly on the labor market and inflation front, demand for dividend-delivering securities is expected to rise (read: Follow Warren Buffet with These ETF Strategies).

Brexit Vote: Another Point of Uncertainty

Investors should also note that the Fed is watchful about the outcome of the Brexit referendum as the ‘leave’ result has the power to derail the Fed’s future course of actions. Notably, if Britain exits the European Union this week, risk-off trade sentiments would surge and keep the market volatile. This strengthens the case for dividend investing (read: Global Growth Worries Loom: ETFs to Play).

Why Dividend Investing?

Dividend earned from securities should make up for capital loss, if any, even if the market crashes. This very idea has kept dividend investing in fine fettle, both in terms of capital gains and payouts. And nothing could be better if this dividend-payment feature is compounded with low P/E products, given Yellen’s caution over equity overvaluation.

Thus, we highlight six dividend ETFs with a relatively lower P/E that investors can keep a watch on in the days to come. Investors should note that P/E (ttm) of the S&P 500-bsed ETF SPY presently stands at 19 times. P/E ratios of the below-mentioned dividend ETFs are lower than or equal to SPY.


PowerShares S&P 500 High Dividend Low Volatility ETF SPHD

P/E – 17

Yield – 3.38%

First Trust Morningstar Dividend Leaders Index Fund FDL

P/E – 19

Yield – 3.11%

Emerging Markets

WisdomTree Emerging Markets SmallCap Dividend Fund DGS

P/E – 10

Yield – 3.07%

WisdomTree Emerging Markets Quality Dividend Growth Fund DGRE

P/E – 13

Yield – 2.80%


WisdomTree International High Dividend ETF DTH

P/E – 15

Yield – 4.44%

First Trust Dow Jones Global Select Dividend Index Fund FGD

P/E – 14

Yield – 5.03%

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PWRSH-SP5 HI DV (SPHD): ETF Research Reports
FT-DJ GL SEL DV (FGD): ETF Research Reports
WISDMTR-E SC DV (DGS): ETF Research Reports
WISTR-INT HI (DTH): ETF Research Reports
FT-MRN DVD LE I (FDL): ETF Research Reports
WISTR-EM QD (DGRE): ETF Research Reports
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