‘DIVining’ a Path Through the Fog in Search of Wealth

ETF Talk: ‘DIVining’ a Path Through the Fog in Search of Wealth

In my most recent Successful Investing newsletter (and if you aren’t a subscriber, why aren’t you?), I weighed the proverbial scales as to whether the bulls or the bears would come out on top. To keep a (very) long story short, there are four tenets of the bullish faith that must be fulfilled for the market to climb. These are:

1. No economic slowdown
2. Inflation continues to decline
3. No hawkish surprises from the Fed
4. No reduction in earnings

Some investors believe these tenets to be within reach, as corporations have proven themselves resilient and much better-than-expected in cutting costs without causing an economic slowdown and inflation has continued to decline. Despite Fed Chairman Jerome Powell recently stating that he and his fellow U.S. central bank leaders are still willing to increase interest rates again, that seems less likely, according to some market analysts, who have projected interest rate cuts to start in May.

In such a market environment, some investors have continued to use dividend-paying stocks as a shield against all this uncertainty. Studies by Ned Davis Research, among others, have lent empirical support to this strategy, as scholars have found that both domestic and international companies whose dividends increased year over year for the past 20 years outperformed companies whose dividends either remained flat or decreased.

However, the task of finding good dividend-paying stocks is easier said than done. After all, discovering the companies that have such a history is problematic. It involves predicting which ones are best suited to endure the unpredictable shocks that the world generates without cutting or eliminating the dividend payouts.

However, there are more than a few dividend-paying exchange-traded funds (ETFs) that aim to demystify this process. One of these is the Global X SuperDividend US ETF (NYSEARCA: DIV).

Dedicated to generating a maximal income strategy, DIV’s managers seek to own the 50 highest dividend-paying stocks trading in the U.S. market, including traditional dividend common stocks, real estate investment trusts (REITs) and master limited partnerships (MLPs). Only companies with sizable dividend payouts, lower relative volatility and a history of paying out consistent dividends over the previous two years make the cut. As a result, that methodology gives this dividend ETF a flavor heavily concentrated in financials, energy and utilities.

Some of the stocks currently in the portfolio include Iron Mountain (NYSE: IRM), International Business Machines Corporation (NYSE: IBM), USA Compression Partners LP (NYSE:USAC), Universal Corp. (NYSE: UVV), Cross America Partners LP (NYSE: CAPL), PACCAR Inc. (NASDAQ: PCAR), New York Community Bancorp Inc. (NYSE: NYCB) and MPLX LP (NYSE:MPLX).

As of Dec. 6, DIV has gained 2.69% over the past month and 1.46% for the past three months. It is currently down 6.06% year to date.

Chart courtesy of www.stockcharts.com

The fund has amassed $601.09 million in assets under management and has an annual expense ratio of 0.45%.

In short, while DIV does provide an investor with a way to invest in dividend-paying stocks, this kind of ETF may not be appropriate for all portfolios. Thus, interested investors should always conduct their due diligence and decide whether the fund is suitable for their investing goals.

I am always happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You may just see your question answered in a future ETF Talk.