Dividend ETFs come in all shapes and sizes these days, but finding one that is truly unique is harder than it seems. All of the largest and most well-established funds are based on uninspiring benchmarks that have risen to the point where their yields barely scratch 3% annually.
If you’re building a portfolio to deliver sustainable income, traditional dividend ETFs can make solid foundations for equity exposure, market correlation and modest yield. However, they might not have everything you need to satisfy the craving for above-average income and asset-class diversification.
But one ETF that has quietly pulled away from the pack of generic equity-income competitors over the last year is the Global X Super Dividend U.S. ETF (DIV).
Global X Super Dividend U.S. ETF – Excitement in a Boring Class
The DIV tracks the INDXX SuperDividend U.S. Low Volatility Index, which tracks the performance of 50 equally weighted common stocks, MLPs and REITs that rank among the highest-yielding securities in the U.S. In addition, to be included in DIV, these securities have to be considered to have lower relative volatility than the market.
This unique combination of assets has proved to generate a very strong 30-day SEC yield of 5.78%. Furthermore, dividends from DIV are paid monthly to shareholders — an attractive quality for those who seek a consistent stream of income throughout the year.
Because DIV has only been in existence for about 17 months, there is not a long track record of performance from which to measure its success against other benchmarks. However, according to my research, this ETF has beat all unleveraged dividend equity-focused ETFs over the last year. A comparison of DIV to the iShares Select Dividend ETF (DVY) and Vanguard High Dividend Yield ETF (VYM) shows just how strong this outperformance has been.
DIV has really broken away from the pack in 2014 because of its exposure to REITs, MLPs, utilities and energy stocks. These sectors came into the year relatively undervalued and have shown remarkable strength as investors have piled into these defensive areas of the market as interest rates have fallen.
I like the unique aspect of exposure to both real estate investment trusts and master limited partnerships in the DIV portfolio because they help boost the yield and diversify the asset class spectrum. This is especially important when the portfolio is more concentrated with only 50 total securities.
The unique style of this dividend ETF might lend itself toward starting out as a tactical position within the context of a balanced income portfolio. Ultimately as price trends develop and more performance data is available, it might even work its way into a core holding with the goal of high monthly income and capital appreciation.
It’s also worth noting that DIV has a sibling ETF with a global slant in the Global X Super Dividend ETF (SDIV). This fund takes a similar approach to selecting high-yielding equity securities in both the U.S. and abroad. This includes exposure to developed and emerging market nations.
Despite the relatively small asset base of $163 million, DIV has been a quiet performer with strong fundamentals that deserves to be on your equity income watch list. As always, I recommend that you place a trailing stop-loss or other sell discipline on this dividend ETF if you do decide to dip a toe in the water. This ensures you define your risk and guards against the potential for a selloff in the market.
David Fabian is Managing Partner and Chief Operations Officer of FMD Capital Management. As of this writing, he was long VYM. Searching for income? Download our latest special report on REITs, MLPs and preferred stocks: The Ultimate ETF Income Guide.