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ETF News And Commentary

The Federal Reserve once again duly turned investors’ attention to the high-income investing corner of the equity world. Though the Fed expressed its confidence in the economic growth that will be enough to support one rate hike by the end of the year, it kept interest rates unchanged for now in its latest meeting, suggesting cheap money flows for a few more months.

Additionally, the central bank hinted at more gradual rate hikes over the next few years with just two lift-offs in 2017 and three each in 2018 and 2019. This implies federal funds rate of 2.625% at the end of 2019. It also reduced the long-term rate forecast to 2.9% from the previous forecast of 3%. Further, the central bank lowered 2016 economic growth outlook for the third time to 1.8% from 2.0%, and inflation outlook to 1.3% from 1.4% (read: Fed Plays Safe As Expected, Outlook Positive: ETFs to Buy).   

The lowered projections and no-rate hike decision have boosted the demand for high dividend-paying stocks and ETFs, making them the biggest potential movers in the weeks ahead. In fact, as per Boris Schlossberg of BK Asset Management, “the differential between dividend yields and 10-year Treasury yields is going to be significant enough that it will attract investors.”  

Further, uneven global economic growth and the November presidential election have made investors nervous about their investment decisions. Amid this backdrop, dividend paying securities are the major sources of consistent income for investors as these generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.

Given this, we have highlighted four ETFs and stocks that yield more than 3% in dividends and could be interesting plays for the coming months.

ETF Picks

Using our database, we have selected ETFs that offer broad exposure to a number of sectors and have a Zacks Rank #1 (Strong Buy) or 2 (Buy) with a decent AUM of above $50 million (read: all the Top Ranked ETFs).

Global X SuperDividend ETF (SDIV - Free Report) – Annual Yield: 6.93%

This ETF provides exposure to 102 highest dividend paying stocks from around the world with each holding less than 2% of the assets. This can be easily done by tracking the Solactive Global SuperDividend Index. Real estate firms take the top spot in terms of sectors at 46% followed by financials (12%) and energy (10%). From a country look, about half of the portfolio is allocated to America while the Asia-Pacific and Europe account for 26% and 18%, respectively. The product has amassed $830.9 billion in its asset base and sees good trading volume of about 191,000 shares a day on average. Its expense ratio is 0.58%. The fund has a Zacks ETF Rank of 2 with a Low risk outlook.

SPDR S&P Global Dividend ETF (WDIV - Free Report) – Annual Yield: 5.33%

This fund follows the S&P Global Dividend Aristocrats Index, which measures the performance of the companies that have followed a managed-dividends policy of increasing or
maintaining dividends for at least 10 consecutive years. The product has $97.5 million in AUM and charges an annual fee of 40 bps. Volume is light at around 10,000 shares a day on an average. Holding 100 stocks, WDIV also provides a nice balance across each component with none of the securities and sectors holding more than 3.6% share and 16.3% share, respectively. The fund has a Zacks ETF Rank of 2 with a Low risk outlook.

iShares Core High Dividend ETF (HDV - Free Report) – Annual Yield: 3.46%

This ETF offers exposure to 74 high quality and high dividend stocks and tracks the Morningstar Dividend Yield Focus Index. It is highly concentrated on the top two firms – Exxon Mobil (XOM - Free Report) and AT&T (T - Free Report) – with over 8% share each while other firms hold less than 6.4% of the assets. Consumer staples (19%), energy (18.5%), healthcare (14.5%) are the top three sectors. HDV is among the largest and most popular funds in the space with an AUM of more than $6.4 billion and charges 12 bps in fees per year. It trades in a solid volume of more than 502,000 shares a day and has a Zacks ETF Rank of 2 with a Medium risk outlook (read: Keep Faith in These Dividend ETFs to Fight Uncertainty).

PowerShares High Yield Equity Dividend Achievers Portfolio (PEY - Free Report) – Annual Yield: 3.30%

This fund offers exposure to 50 stocks selected principally based on dividend yield and consistent growth in dividends. It tracks the NASDAQ US Dividend Achievers 50 Index, charging 54 bps in fees from investors. The ETF is well spread out across components with none holding more than 4.05% of the assets. From a sector look, about one-fourth of the portfolio is dominated by utilities while financials, consumer staples and energy round off the next three spots. The product has amassed $1 million in AUM and sees solid volume of 477,000 shares a day. It has a Zacks ETF Rank of 2 with a Medium risk outlook.

Stock Picks

We have chosen four top picks using the Zacks Screener that fits our criteria: a Zacks Rank #1 or #2, a Value Style Score of ‘A’ and a market capitalization of over 2 billion. Our chosen stocks are:

Domtar Corporation (UFS - Free Report) – Annual Yield: 4.53%

This South Carolina-based company is a leading manufacturer and marketer of printing and writing papers. It has a 5-year historical dividend growth rate of 22.7% and a payout ratio of 57%. Domtar has a Zacks Rank #1 and a market capitalization of $2.29 billion.

Macy’s Inc. (M - Free Report) – Annual Yield: 4.19%

This Ohio-based company is one of the nation’s prime retailers offering a range of merchandise, including apparel and accessories for men, women, and children; cosmetics; home furnishings; and other consumer goods. It has a market capitalization of over $11.11 billion. The company has been increasing its dividend once every year over the past five years at an annualized growth rate of 30%. The payout ratio stands at 42%. The stock has a Zacks Rank #2 (read: 7 Top Market-Beating Dividend ETFs to Buy Now).

First American Financial Corporation (FAF - Free Report) – Annual Yield: 3.32%

This California-based company provides financial services through its Title Insurance and Services segment and its Specialty Insurance segment. It also raised its dividend every year over the past five years at an annualized rate of 41% with a current payout ratio of 37%. The company has a Zacks Rank #2 and a market capitalization of $4.50 billion.

L Brands, Inc. (LB - Free Report) – Annual Yield: 3.29%

This Ohio-based company is a specialty retailer operator of women’s intimate and other apparel, beauty and personal care products, and accessories. With a market capitalization of $20.84 billion, the company has a 5-year historical dividend growth rate of 24.5% and a payout ratio of 60%. The stock has a Zacks Rank #2.

Want more information on the world of ETFs? Make sure to check out the podcast below where we discuss the investing landscape with Kevin O’Leary and Connor O’Brien of O’Shares Investments:



 

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