ETF Base: What do you get when you mix international equities with a high-yield advantage? You get a super dividend ETF – the Global X SuperDividend ETF (NYSEARCA:SDIV).
Thrown into one of the hottest markets for dividends in decades, the SuperDividend ETF is making waves with investors who are after global high-yield exposure. The fund boasts an impressive 12-month yield of 7.87%, a yield matched only by junk debt securities.
SuperDividend ETF Makeup
The SuperDividend ETF by Global X tracks an international blend of equities, with the fund split 65-35 to international and US stocks. Behind the fund is an equal weighted index, the Solactive Global SuperDividend Index, which holds 100 different stocks.
The fund rebalances one time each year in February, allowing it to lock in profits from winners and redistribute funds to temporary losers.
The fund holds stocks typical of high-dividend funds. The fund holds the following (top 5) sector weights:
- Real Estate 23.65%
- Financial Services 18.73%
- Communication Services 16.47%
- Consumer Cyclical 8.92%
- Industrials 6.95%
Real estate and financial services drive the bulk of the high yields for this particular ETF. Real estate holdings include highly levered REITs including mortgage REITs (see full list of dozens of REITs), which often yield in excess of 15% per year to investors. Business development companies, such as Apollo Investment Corp. (AINV) make up a significant portion of financial services exposure.
Communication services companies are prized as rewarding investments driven by their impressive operating cash flow yields. Depreciation expenses recorded on the balance sheet add to cash flows that can be distributed to investors.
Investors can feel safe in this macro-driven environment. The fund primarily invests in developed world economies, with minimal exposure to troubled areas – European stocks make up less than 20% of NAV.
Here are the top five countries as a percentage of assets:
- United States 35.80%
- Australia 23.64%
- United Kingdom 7.31%
- Singapore 5.94%
- Canada 3.74%
SuperDividend ETF fees are very competitive. Global X charges an annual management fee of .58% of assets in line with most dividend funds, and lower than many international ETFs.
A Fund for Monthly Income
Further boosting the power of reinvested dividends is the fact that the SuperDividend ETF distributes dividends to investors every month. The strongest months are in January, April, July, and October, months in which its highest dividend payers distribute a quarterly dividend to shareholders.
Compounding monthly can greatly improve the total return for investors. Simple mathematics reveals that 8% per year compounded monthly turns $1 into $4.96 after 20 years. Compounding quarterly, investors would turn the same $1 of invested capital into $4.87. These comparisons ignore the role of capital appreciation and the power of early reinvestment into a fund growing its NAV.
In the last year, the fund beat the iShares Dow Jones EPAC Select Dividend ETF (NYSEARCA:IDV) in terms of capital appreciation and total return. SDIV boasts a one-year return of 12.27% vs. 9.03% for IDV. Here is a chart to show how the funds move together:
Outperformance for the SuperDividend fund will come from persistently low rates. Business development companies and mortgage REITs rely on a steep yield curve. Other high yield sectors like utilities for instance, experience capital appreciation as investors turn to dividends to provide consistent income.
Bottom line: Global X’s SuperDividend ETF gives investors quick access to some of the highest yielding securities in the world. Seeing as this fund has its risks in international exposure to stocks paying massive dividends, an equal weighting structure is appropriate. Investors who hold this fund for the long haul are unlikely to be disappointed by its monthly distributions and like other high yield instruments, might be a good candidate for a self-directed Roth IRA.
Written By The Staff At ETF Base Disclosure: No positions in any tickers mentioned here.
The author has a background in Chemical Engineering and an MBA specializing in Finance and Biotech Management. Enamored by investing and saving since a teen, the author has been an advocate for optimized investment returns and frugal hacks for everyday consumers.