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A Dividend ETF For The Times

A Dividend ETF For The Times - DIV

With U.S. Treasury yields still hovering near historic lows, it is not surprising that income investors are embracing high-yielding sectors such as telecom and utilities. It is investors' thirst for income and yield that puts exchange traded funds such as the Global X SuperDividend ETF DIV 0.48% in the spotlight.

Dividends And Low Volatility

Actually, DIV offers exposure to two of this year's most prominent themes from the world of ETFs: dividends and low volatility. DIV, which debuted in the first quarter of 2013, tracks the Indxx SuperDividend U.S. Low Volatility Index. In addition to featuring high-yielding stocks, DIV's index searches for those names that have displayed low betas against the S&P 500.

“High dividend paying stocks have historically demonstrated the potential to deliver both high income as well as the opportunity to grow one’s principal. To analyze high dividend stocks, we utilized Nobel laureates Eugene Fama and Kenneth French’s research portfolios which ranked all dividend paying stocks in the US and placed them into one of 10 buckets, or deciles, based on their yield. We specifically looked at the performance and characteristics of just the highest decile of dividend yielders, the top bucket, based on these Fama & French portfolios from 1960 to 2015,” according to new research from Global X.

A Closer Look At DIV

Home to $334.6 million in assets under management, DIV certainly tempts on a yield basis. The ETF, which pays a monthly dividend, sports a 30-day SEC yield of 6.55 percent. DIV shows a significantly higher yield than standard dividend ETFs because it is able to hold asset classes beyond common stocks.

While DIV allocates more than 24 percent of its weight to utilities stocks, its largest sector weight, the ETF also features exposure to alternative asset classes such as mortgage real estate investment trusts (mREITs) and master limited partnerships (MLPs). Those high-yielding asset classes combine for over 32 percent of DIV's lineup, according to issuer data.

Over time, reinvesting dividends from high-yield stocks has the potential to bolster a portfolio's total returns. In turn, that notion bolsters the case for long-term investors to consider an ETF like DIV.

“This means that the price appreciation for high dividend portfolio was annualized at approximately 6.4 percent, while the income generated by the portfolio represented approximately another 6.4 percent. If dividends were not reinvested (for example, the dividends were treated as income and spent), the price returns or growth of principal of this strategy would have lagged the S&P 500. However, the historically high yield combined with the price appreciation of the underlying stocks demonstrates that this strategy focused on the highest tier of dividend payers has resulted in both high income and portfolio growth,” added Global X.

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