Just How “Super” is the Super Dividend ETF?
Whenever you slap an adjective like “super” on something, it can rouse feelings of curiosity, optimism and suspicion.
This is especially true in the investing word, considering the mass of information, conjecture and product variations that average investors are bombarded with.
In my daily efforts to stay on top of the news and analysis, I seek to find the best dividends to earn – by the safest means possible.
I hold true to my personal philosophy: “Take the least risk necessary to achieve your goal.”
As a financial planner, that means helping retirees generate necessary and sustainable levels of income to provide cash flow for the duration of retirement (and beyond).
For younger investors, it means coupling savings rates with realistic growth projections, while avoiding massive swings.
It’s important to remember that with dividend investing, bigger isn’t always better.
Case in point, I recently encountered a fairly new ETF called the Global X Super Dividend ETF (NYSE: SDIV).
The dividend is, indeed, super. According to Global X, the 30-day SEC yield is 6.69%, the 12-month dividend yield is 7.61% and the distribution yield is 11.43%.
Here’s a breakdown of what these terms mean…
1. Thirty-day SEC yield is the interest earned in the most recent period, after deducting for fund expenses.
2. Twelve-month dividend yield is the yield an investor would have received had they held the fund over the last 12 months
3. Distribution yield is the most recent distribution annualized then divided by the current net asset value of the fund.
Now, when it comes to comparing funds, the 30-day SEC yield is the number most commonly used. And for a stock fund, 6.69% is very good, maybe even “super.”
We can’t just buy based on one indicator, though. It’s important to understand the fund’s composition.
To get started, Morningstar categorizes the fund as a “World Stock” fund. This means it invests both in, and outside, the United States.
Here is the country allocation breakdown:
Nearly 36% is allocated to the United States. But for me, as an advocate of non-BRIC emerging market investing, I’m looking for an uncommon country selection to better diversify my portfolio.
China and Brazil are in the mix, but at less than 4% of the portfolio combined. I’m happy to see Australia, Singapore, Canada and Poland.
Next we’ll examine the industry allocation…
We see many of the staples of income-oriented stock funds, and REITs are at the top. No real surprises here.
Next I want to see what companies are included. Given that two-thirds of the portfolio is outside the United States, I’m expecting to see some unfamiliar names.
I’m satisfied, as there are several names I don’t know. Now, with my analyst hat on, I’ll take the top 10 holdings and do some research to see what the stories are with these picks.
For the average investor, when selecting an ETF without external guidance, you should at least familiarize yourself with the biggest holdings in a portfolio. It’s an essential and easy exercise that ensures the other funds you own don’t cover the same companies.
Finally, I look at some of the technical aspects of the ETF.
One important consideration is volume. How many shares does the ETF trade on an average day? This is important for any security. Low volume leads to problems, especially when trying to sell an underperforming asset.
SDIV is averaging more than 100,000 shares per day for the past 90 days.
That’s not a lot, but it’s not terrible, either. Some securities trade only a few thousand – or even hundreds – of shares per day. Only with low volume, you may not be able to find a buyer when you want to sell.
Bottom line: SDIV has only been around since June 2011. It’s lost 12% in that time period, while the S&P 500 is up 12%. The yield is attractive – but not enough to compensate for the loss.
For now I’ll keep SDIV on my watch list. It has some interesting qualities, but until it has a longer and more successful track record I’ll have to look elsewhere.
If you’d like to read a more bullish take on SDIV, though, head on over to Dividends & Income Daily to see Louis Basenese’s take on the fund’s prospects.