Dividend ETFs That Outpace the S&P

06/04/2013 6:30 am EST

Focus: ETFs

Tom Lydon

Editor and Publisher, ETF Trends

Rarely do dividend-seeking investors find investments that offer significant yields plus handsome appreciation. But this year, opportunities abound, says Tom Lydon of ETF Trends.

Dividend investors typically give up on fast growth in favor of steady income. However, some dividend exchange traded funds have been outpacing the broader S&P 500 so far this year.

Of the almost 50 dividend-focused ETFs on the market, 18 are outperforming the S&P 500, reports Juan Carols Arancibia for Investor's Business Daily. Top outperforming dividend-yield weighted ETFs include:

  • PowerShares KBW Premium Yield Equity REIT Portfolio (KBWY). KBWY is based on the KBW Premium Yield Equity REIT Index, which tracks around 24 to 40 small- and mid-cap equity REITs in the US. The ETF has a 4.02% 12-month yield, a 0.35% expense ratio, and it is up 29.6% year-to-date.
  • SPDR S&P Dividend ETF (SDY). SDY tracks the S&P High Yield Dividend Aristocrats Index, which follows the highest dividend-yielding S&P Composite 1500 index components that have consistently increased dividends every year for at least 20 consecutive years. The fund has a 2.66% dividend yield, a 0.35% expense ratio, and it is up 21.1% year-to-date.
  • PowerShares KBW High Dividend Yield Financial Portfolio (KBWD). KBWD tries to reflect the performance of the KBW Financial Sector Dividend Yield Index, which tracks 24 to 40 listed financial companies that engage in the business of providing financial services and products, including banking, insurance, and diversified services. The ETF has a 7.52% 12-month yield, a 1.48% expense ratio, and it is up 18.7% year-to-date.

Indices that follow a dividend yield-weighted methodology generate more income, but the funds lean toward more distressed, high-yield, and small-cap firms than other types of broad equity ETFs. Top outperforming dividend-weighted ETFs include:

  • WisdomTree Japan Hedged Equity Fund (DXJ). DXJ tracks dividend-paying companies incorporated in Japan that are tilted toward global revenue base. The fund also hedges against depreciation in the yen currency. The ETF has a 1.16% 12-month yield, a 0.48% expense ratio, and it is up 41.4% year-to-date.
  • WisdomTree Middle East Dividend Fund (GULF). GULF tracks Middle East companies weighted based on cash dividends paid. The ETF has a 4.11% 12-month yield, a 0.88% expense ratio, and it is up 21.8% year-to-date.
  • WisdomTree MidCap Dividend Fund (DON). DON holds US mid-cap dividend stocks. The fund has a 0.38% expense ratio, a 3.23% 12-month yield, and it is up 21.3% year-to-date.

ETF indices weighted by total dividends paid would lean toward large-caps, since larger stocks would dish out the most overall dividends. Additionally, the large-cap tilt provides lower volatility in times of market distress.

Additionally, the actively managed ALPS Sector Dividend Dogs (SDOG) has also been outpacing the broader markets. SDOG selects stocks from the S&P 500 that have the highest dividend yield in their respective sectors. The well-known "Dogs of the Dow" theory is applied to S&P sectors. The active ETF has a 0.40% expense ratio, a 3.97% 30-day SEC yield, and it is up 22% year-to-date.

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