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In the past few years, interest rates in the U.S. and other developed countries have been at historic lows. In this scenario, investors seeking current income have eventually shifted their focus to either dividend paying stocks, or high yield products in any number of other categories like MLPs or BDCs (11 Great Dividend ETFs).
Unfortunately, this trend looks likely to continue as we head into the end of the year, as Bernanke appears poised to keep rates at depressed levels for some time. If anything, investors could see even lower rates at the end closes out thanks to widespread speculation over more QE.
Furthermore, investors should also note that high dividend paying stocks play a defensive role in a portfolio and can help to reduce volatility in otherwise shaky times. This can be especially true when investors look at high dividend paying ETFs which have the benefits of high yields but spread risk around a variety of sectors and firms.
For these reasons, income investors could be well served by looking at some of these specialized ETFs for their own portfolios. This technique will undoubtedly help to boost current income levels while at the same time helping to spread portfolios around more securities (Three Excellent Dividend ETFs for Safety and Income).
In this context, although U.S. dividend ETFs have been in the limelight among income starved investors over the last couple of years, many also want to consider funds which focus on securities outside the U.S. and onto international markets instead. Many securities in this corner of the market offer up payouts that not only crush 10 year treasury rates, but also easily outpace S&P 500 yields as well.
In this way, investors can have the added benefit of gaining valuable international exposure which is something that most are lacking in their portfolios at this time. Furthermore, the added yield is likely to be a nice touch, which should help to smooth overall volatility and allow investors to attack international markets in an arguably safer way:
With this backdrop and an increased focus on yield by many investors, we have highlighted four funds below which have payout yields of more than 5%, and provide exposure to equities outside the U.S. This may give investors new ideas for ways to achieving higher levels of current income without too much of a focus on the domestic market, taking advantage of the economies outside America for higher yield payouts:
For high yield securities in Australia, investors can certainly look to KROO. The product tracks the IQ Australia Small Cap Index. The Index focuses on companies that make up the smallest 15% of the market cap in the nation, giving the fund an entirely different focus than large cap products in the nation. This resulted in a portfolio of 104 securities with expense ratio of 69 basis points a year in fees.
The fund has an impressive dividend yield of 8.56% making it a top choice for yield focused investors. Still, KROO doesn’t just invest in 104 of the highest yielders, but instead is just zeroed in on high yield sectors which traditionally offer outsized payouts to investors.
This ETF assigns 27.9% of its asset base to basic materials stocks suggesting a tilt towards the commodity-intensive segment of the Australian economy. KROO looks to be a good choice for investors seeking for an exposure to the resource-dominant Australian markets.
The fund appears to be spread out among companies, as investment in the top 10 holdings stands at 23.6%. Seek Ltd, Bank of Queensland Ltd, and Ansell Ltd take the top three positions in the fund with asset investment of 2.92%, 2.77% and 2.58%, respectively (Australia ETFs: a Developed Market Play on Asian Growth).
For a global exposure in the ETF space, investors can invest in State Street’s DWX, which was launched in February 2008. The fund tracks the price and performance of the S&P International Dividend Opportunities Index, thereby giving investors an option to target dividend paying stocks on a global basis. With asset under management of $905.73 million, this fund provides exposure to the stocks globally that provide high dividend yields.
The fund has an attractive dividend yield of 7.59% thereby providing a good level of current income to investors in this uncertain economic environment. DWX has an edge in expenses as it charges an expense ratio of 45 basis points, the lowest on the list.
DWX provides exposure to 125 high dividend yield international stocks while around 30% of which make up the top 10 holdings. Among individual holdings, Aviva and Westpac Banking Corp have been weighted equally (3.25%) in top 10 holdings while the third preference was allocated to Seadrill Ltd with an asset investment of 3.19%.
Among sector holdings it has been noticed that dividend focused ETFs are generally inclined towards telecommunication, financials and utility, and DWX is not an exception. It collectively assigns 60.4% of its asset base to these three sectors (Utility ETFs: Slumping Sector in Rebounding Market).
DWX has more than 70% correlation with the developed countries and 15% with the emerging countries. Australia and Germany combine to comprise about 20% of the exposure.
For investors looking to tap into the European market, they can invest in FDD which tracks the price and performance of the STOXX Europe Select Dividend 30 Index, before fees and expenses. The index is a dividend-weighted benchmark of 30 stocks selected from the Dow Jones STOXX 600 Index, which includes high-dividend yielding companies across 18 European countries (Three Resilient European ETFs Still Going Strong).
It looks to focus on companies that have a current year dividend-per-share greater than the trailing five-year annual average with payout ratios less than 60%. By doing this, investors could gain exposure to a group of companies that are increasing their payouts but still have a nice buffer of safety.
The fund has a dividend yield of 6.76%, a good level considering the focus of the fund. The fund manages an asset base of $12.2 million which it invests in a basket of 31 dividend paying stocks. Of this, 44.9% is invested in the top 10 holdings.
Among individual companies, Royal & Sun Alliance Insurance Group Plc takes the top spot with a share of 5.48% while among others the fund does not invest more than 5.06%.
From a country point of view, approximately 40% of the stocks are from the United Kingdom, 12% from France and 11% from Germany. The rest are based in Switzerland, the Netherlands, Belgium, Bermuda, Spain, Italy and Sweden.
Like many other dividend focused funds, FDD also has a tilt towards telecommunication, Financials, and Utilities with total asset investment of approximately 80%. In order to generate current income through FDD, investors need to pay an expense ratio of 60 basis points annually (Can You Beat These High Dividend ETFs).
For another global fund with a high yield, investors also have iShares’ IDV to consider. The product tracks the Dow Jones EPAC Select Dividend Index, a benchmark that consists of 101 stocks that have provided relatively in one hundred of the high dividend yields on a consistent basis over time. The fund produces a yield of 5.15%.
The product’s assets are pretty well spread out with large caps making 63.9% of the asset base while mid and small caps accounting for 35.3% of the portfolio. Among individual holdings also, the fund does not appear to be concentrated in the top 10 as just 28.9% of the asset base is invested.
For sectors, telecom accounts for 21.5% of the total, while consumer staples and utility stocks round out the top three. Region exposure is tilted towards Europe in the top spot while Australia gets the second slot overall.
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