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).
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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.
iShares Dow Jones EPAC Sel Div Ind (ETF) (NYSEARCA:IDV) has a total asset base of approximately $3 billion and a dividend yield of 5.37%, the financial sector accounts for 30% of the its total holdings. It is an ideal investment for people looking at high dividend yielding international securities, as it tracks 100 such securities representing Europe, Pacific, Asia and Canada (EPAC) regions. The fund has a high concentration of Australian and British stocks which form almost 40% of its total assets. It has a number of blue chips in its portfolio with Astra Zeneca, Shell, Commonwealth Bank of Australia, Macquarie and BAT representing its top five holdings. This ETF also provides a good way for USA investors to diversify their asset holdings while earning a good dividend income.
iShares S&P US Pref Stock Idx Fnd (ETF) (NYSEARCA:PFF) tracks the S&P US Preferred Stock Index for stocks which have a market capitalization of at least $100 million. With total assets worth $17.3 billion, this ETF has a dividend yield of 5.79% and is trading at 12.2 times its earnings. Since dividend from preferred stock is fixed and enjoys a higher priority over other normal stock, it is less risky than normal dividend yielding ETFs. The top holdings of this ETF are Wells Fargo & Co (NYSE: WFC), Allergan Plc (NYSE: AGN), HSBC holdings (NYSE: HSBC) and Barclays (NYSE: BCS). Banks and financial stocks form almost 60% of its holdings while its exposure to USA listed stocks is more than 80% of its assets. Though the financial sector has performed poorly, this ETF has been relatively unaffected as the dividends for the preferred stocks are not expected to decline. The number of funds we track that hold a position in PFF increased to six from four during the second quarter, but the corresponding value of their holdings declined by 15% to $7.7 million.
PowerShares Preferred Portfolio (ETF) (NYSEARCA:PGX) tracks the performance of the BofA Merrill Lynch Core Plus Fixed Rate Preferred Securities Index and invests in stocks in fixed-rate US dollar denominated preferred securities issued in the domestic market with a minimum credit rating of B3. With the Fed delaying raising the interest rates, PowerShares Preferred Portfolio (ETF) (NYSEARCA: PGX) has become quite popular as is evident from a 150% increase in the total value of positions owned by the investors in our database in the second quarter. The number of funds that hold the ETF inched up by one to three during the second quarter, while the total value of their holdings amounted to $4.53 million at the end of June. This ETF has a heavy exposure towards the financial sector with almost three-fourth of its holdings being focused in this sector. With total assets over of $4.6 billion, the fund is trading near its yearly highs at approximately $15. The fund has a 13% allocation towards Barclays (NYSE:BCS), HSBC Holding (NYSE: HSBC) and Wells Fargo (NYSE: WFC) which are its top three holdings. PGX sports a dividend yield of 5.75%.
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