The hunt for dividends often begins in the stock world as investors look for companies which are not just stable and reliable, but also maintain a focus on payout for shareholders. However, investors often forget to move beyond single stocks for their yield, missing out on some powerful investing tools.
There are a wide variety of mutual funds and ETFs that focus specifically on stable dividends for their investors—each come with a number of advantages. For starters, broad-based funds offer a diversified exposure, protecting investors from weakness in any one company. Second, these funds (namely ETFs) can come with benefits when tax time rolls around. Some products even feature active management, an attribute that is attractive to some investors.
One of the biggest deterrents for investors moving into the funds world is simply a lack of familiarity with these products. Below, we will walk through an example of a popular dividend ETF and how to analyze and research such a product to determine if it is right for your portfolio.
SuperDividend ETF (SDIV)
- Index: Solactive Global SuperDividend Index
- Expense Ratio: 0.58%
- Dividend Yield: 6.07%
First things first, you will want to look at the index of a particular fund (if the fund is actively managed, be sure to take a close look at the fund manager’s methodology and the underlying holdings). In the case of SDIV, its index equally weights 100 securities that rank among the highest yielding equity securities in the world. That means that each stock gets an approximate 1% weight and ensures that no one name can dominate the holdings.
Second, investors will want to dive into what exactly the fund holds. After digging a little deeper (which you can see by clicking here) we see that the fund invests primarily in mid-cap stocks and tends to focus on real estate (34%) above other sectors. Right off the bat we know that SDIV will be somewhat of a volatile investment given the nature of mid-cap stocks as well as real estate equities.
We also see that the fund puts about one third of its assets into U.S. based stocks, but also invests in companies domiciled in countries like Australia, China, Singapore, and several others. For an investor uncomfortable with international exposure, this would obviously not be a good choice. But for someone who wishes to gain exposure to stocks outside of the U.S., SDIV certainly offers a nice geographical diversity.
Next, we see that the fund charges 58 basis points per year for investment. This is obviously an expense that never comes attached to single-stock investing, but when you consider the wide variety of stocks this single ETF offers exposure to, the cost can be worth it for some. Finally, we see that SDIV pays a handsome dividend of more than 6% (which is paid out on a monthly basis).
Is This Fund Right for You?
When it comes to the fund world, investors will want to look less at each individual stock in the holdings (though that certainly holds some merit) and more at the product’s overall strategy. The first and most important thing to check is that the fund’s investment methodology resonates with you and your portfolio goal. From there, you can take a deeper look into the specific holdings and other attributes that come attached with the product.
Looking deeper into funds and conducting sound research can seem like a tall order for someone who is used to picking stocks. Our sister sites, ETFdb.com and MutualFunds.com offer in depth analysis and data for the funds universe, helping you make the right investment for your future.
The Bottom Line
ETFs and mutual funds are not necessarily the right choice for every investor, but they should certainly not be overlooked. We urge you to stretch your comfort zone a bit and take a look at these products if you have not already; they can be a powerful addition to your portfolio.
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