High-Payout ETFs (Correction)

February 13, 2012

High-dividend ETFs are all the rage these days due to uncertainty in the global economy. But pity the investors who have more than 50 funds to choose from.

(CORRECTION: A previous version of this blog, titled “Choosing A High-Dividend ETF,” was based on erroneous data, and incorrectly showed a number of WisdomTree funds with negative returns in the past 12 months. We have reissued the blog with corrected total returns. We regret the error.)

 

It’s easy enough to go with the most popular funds, or even one that Uncle Bob did well in. But, investors could do a whole lot better.

That said, it takes some research and an understanding that choosing the right high-dividend fund is a bit of a balancing act. Getting it right is important, because high-payout funds provide investors with a cushion during periods of great volatility.

ETFs that have the highest dividend yields aren’t necessarily the best performing ones. While collecting distributions from a dividend-oriented ETF, the share price moves up and down. In some cases, a falling share price is enough to offset payout, and investors end up with overall negative returns on investment.

For a real-world example, two funds in the top 10 most popular high-dividend ETF by fund assets experienced negative returns in the 12 months ended Feb. 13, 2012.

 

Fund Ticker 12-Month Total Return 12-Month Dividend Yield Assets Under Management
(as of 2/7/2012)
iShares Dow Jones Select Dividend DVY 11.36 3.37 10,028,516,229
Vanguard Dividend Appreciation VIG 6.79 2.05 9,983,121,779
SPDR S&P Dividend SDY 7.81 3.12 9,080,117,171
WisdomTree Emerging Markets Equity Income DEM 4.67 3.99 3,102,243,977
Vanguard High Dividend Yield VYM 10.30 2.83 2,873,851,683
WisdomTree Dividend Ex-Financials DTN 12.12 3.05 1,194,517,347
iShares High Dividend Equity HDV N/A N/A 1,183,999,302
WisdomTree LargeCap Dividend DLN 10.23 2.63 1,129,161,823
WisdomTree Emerging Markets SmallCap Dividend DGS -3.40 3.58 915,257,234
iShares Dow Jones International Select Dividend IDV -3.95 5.08 825,537,141

Source: Bloomberg


If only investors knew funds such as the WisdomTree Emerging Markets Small Cap Dividend Fund (NYSEArca: DGS) and the iShares Dow Jones International Select Dividend Index Fund (NYSEArca: IDV) were in the red in spite of their attractive yields.

With that knowledge, the most popular list might a bit different.

In contrast, plenty of funds in the past year with decent dividend yields have risen in price as well. That has translated into quite attractive total returns. Just look at the table below.

 

Fund Ticker 12-Month Total Return 12-Month Dividend Yield Assets Under Management
(as of 2/7/2012)
WisdomTree Equity Income DHS 13.89 3.26 401,496,407
PowerShares KBW High Dividend Yield Financial KBWD 5.41 10.62 48,151,811
WisdomTree Dividend Ex-Financials DTN 12.12 3.05 1,194,517,347
First Trust Morningstar Dividend Leaders FDL 11.30 3.52 471,686,129
iShares Dow Jones Select Dividend DVY 11.36 3.37 10,028,516,229
PowerShares High Yield Equity Dividend Achievers Portfolio PEY 10.36 3.67 347,586,190
Vanguard High Dividend Yield VYM 10.30 2.83 2,873,851,683
WisdomTree LargeCap Dividend DLN 10.23 2.63 1,129,161,823
Guggenheim Multi-Asset Income CVY 8.32 3.73 616,942,554
First Trust Value Line Dividend FVD 9.03 2.52 406,546,409

Source: Bloomberg

 

As I remarked, it's unfortunate that most of these funds haven't received as much investor attention as they probably deserve.

 

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