Dividend ETFs Beckon

September 27, 2011

Dividend ETFs have been all the rage lately, and it’s not hard to see why.

Even when the market is as volatile as it is right now, companies are loath to reduce their dividend payouts for fear of spooking investors even further. Thus, focusing on dividend-paying stocks allows you to temper general market losses with regular dividends.

There’s an ETF for that. Actually, there are 49. WisdomTree has long embraced the power-of-dividend rhetoric, and is responsible for more than half of the 49. You can buy a high-dividend ETF that focuses on U.S. stocks, global stocks, developed market stocks, emerging market stocks, Europe, Asia Pacific—even the Middle East. The majority of these funds select and weight securities based on their dividend yields, so you’re getting the highest possible exposure to attractive dividends.

I was curious about the extent to which the dividend theory was true, so I looked at a few global dividend funds—the First Trust Dow Jones Global Select Dividend ETF (NYSEArca: FGD), the Guggenheim S&P Global Dividend Opportunities ETF (NSEArca: LVL) and the WisdomTree Global Equity Income (NYSEArca: DEW)—and compared them with the iShares MSCI ACWI Index Fund (NYSEArca: ACWI).

Global Dividends vs. ACWI


The difference that dividends make can be pretty striking—FGD outperformed ACWI by 3.4 percent since Aug. 1, 2011. LVL and DEW also outperformed ACWI, albeit less impressively than FGD.

I also pulled data from the past three years to see how consistent the trend is. For the most part, FGD has been consistently ahead, ending the three-year period up nearly 22 percent, in comparison with ACWI’s 9 percent return.

Still, the story would have been different if you had been looking at these securities from September 2008 through June 2009, when ACWI beat all three dividend ETFs.


Global Dividends vs. ACWI: 3 years


One cautionary note I would include is that FGD has a slightly smaller cap tilt than ACWI or DEW, which could make it a riskier buy.

Weighted Average Market Cap: ACWI/DEW/FGD/LVL

Still, the numbers speak for themselves. Even if you aren’t worried about the recent volatility, high-yielding dividend ETFs are valuable portfolio components.

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