High dividend yielding stocks and ETFs are in high demand as most central banks have kept their benchmark interest rates near the 0% level. Investors who need a regular source of income are actively looking for bond alternatives and these high dividend ETFs form a good substitute to fixed income assets such as bonds. With the global economy in the doldrums, it looks unlikely that the interest rates will be raised by major central banks.
Even the US Federal Reserve has signaled that it will raise interest rates extremely slowly if at all. ETFs with a high yield will remain an attractive investment class in this scenario. Development market-focused ETFs have lower risk as the political and social risks are lower in these countries as compared to the emerging and frontier markets.
Having said that, let’s take a closer look at five high-yield dividend ETFs, some of which also registered a significant support from the smart money investors in our database. At Insider Monkey, we track around 750 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year (see more details about our small-cap strategy).
Wisdom Tree Europe SmallCap Div Fd (ETF) (NYSEARCA:DFE) is down by over 4% year-to-date. This ETF tracks European small-cap stocks, which pay regular dividend and has almost 27% of its assets allocated towards the industrial sector. Consumer discretionary, Financials and Information Technology are the other top sector holdings. Wisdom Tree Europe SmallCap Div Fd (ETF) (NYSEARCA: DFE) has the largest exposure towards the UK which forms almost 25% of its holdings. The sharp depreciation in the value of the pound is expected to provide a strong tailwind for UK stocks as they will benefit from higher exports. The fund has returned more than 70% since its inception in 2006 and it has an attractive dividend yield of 2.70% with an expense ratio of 0.58%.
SPDR S&P International Dividend (ETF) (NYSEARCA:DWX) has gained nearly 8.50% since the beginning of 2016 and is currently trading very close to its yearly high price at $36. It replicates the performance of the S&P International Dividend Opportunities Index. With a dividend yield of 5%, it has total assets worth ~$999 million. SPDR S&P International Dividend (ETF) (NYSEARCA: DWX) has a basket of 100 international high dividend-yielding stocks and ADRs. It has a diverse mix of stocks from different countries with stocks from Australia, Canada and UK forming almost 50% of its holdings. With extensive international mix of stocks, this ETF also provides a good non-USA exposure to investors besides a high dividend yield. The expense ratio is also relatively low at 0.45%. Utilities Finance and Energy are the top sectors of this ETF and account for almost 55% of its total holdings.