Dividend ETF Dogfight: FGD Vs. SDIV

November 15, 2013

Seeking stocks from around the world with high dividend yields? A challenge awaits.

If Janet Yellen’s first day of congressional testimony told us anything, it’s that rates will remain low for the foreseeable future, and further.

And if the next Federal Reserve chief is right, then dividend stocks will continue to be in high demand. Now, it may seem crazy to compare two high-dividend-yield ETFs just as we run a piece on this website saying there’s a dividend stock bubble too.

But I’m sticking to my story. If rates—both domestically and globally—remain at depressed levels, dividend stocks will continue to have a place in investors’ portfolios.

What’s more, investors may be wondering if the outperformance of the U.S. market can continue into the future. After all, the U.S. has been the best-performing developed market in the world for nearly half a decade now.

For that reason, those seeking equity yield but concerned about the relative strength of the U.S. market would do well to consider a global dividend portfolio.

For better or worse, there are just two choices for investors seeking any semblance of liquidity: the First Trust Dow Jones Global Select Dividend (FGD | C-51) and the Global X SuperDividend fund (SDIV | C-40). That doesn’t mean it’s an easy choice, as the two funds have extremely different portfolios.

While neither fund attracts the kind of volume required by active investors, both can be accessed quickly, with trading spreads at 15 basis points or less. To put a finer point on it, SDIV is roughly twice as liquid as FGD based on both median volume and average spread.

That said, dividend investing is built on a foundation of long-term, compounded returns rather than tactical trading, so the liquidity gap and trading spreads are less important than exposure.

In addition, the two funds have roughly the same annual expense ratio, so the full cost of the two products—expense ratio plus quoted spreads—is fairly competitive: 67 basis points for SDIV vs. 75 basis points for FGD.

However, once you take into account exposure differences and the impact that has on performance, this 8-basis-point difference becomes nearly inconsequential.

On the surface, the two funds seem to differ based solely on their coverage: SDIV includes both emerging and developed-market stocks, while FGD only picks stocks from the developed world. But that surface likeness is misleading.

At their core, FGD and SDIV are two very different takes on dividend stocks. Whereas SDIV simply tries to hold the 100-highest-yielding stocks from around the globe, FGD targets 100 globally listed stocks with positive five-year dividend growth and sustainable payout ratios.

Sure, SDIV’s index applies a dividend-stability screen, but it only looks for pending dividend cuts or negative earnings expectations.


Find your next ETF

Reset All