Investors continue to embrace dividend exchange traded funds. That devotion is highlighted by the over $8 billion that has flowed into dividend ETFs this year.
Increasingly popular are those ETFs that emphasize, through various methodologies, dividend growth. That is certainly a positive trait. From 1972 through 2012 companies that initiated or consistently raised dividends outperformed and were less volatile than the companies either did not pay, cut or kept dividends stagnant, according to Ned Davis Research.
There is also something to be said for capturing payouts on basis that is more regular than quarterly. Say monthly. As we noted earlier this year, there are some equity-based ETFs (nearly all bond funds deliver distributions monthly) that deliver monthly dividends. [ETFs for Monthly Dividend Hunters]
There is more to the monthly dividend case than merely getting 12 payouts per year as opposed to four. Although there evidence does not suggest monthly dividend ETFs yield more than their quarterly counterparts, the monthly advantage shines through via increased compounding for investors opting for dividend reinvestment. That creates return advantages for some monthly dividend ETFs over time relative to their quarterly-paying rivals.
With that, we’ve unearthed more common stock monthly dividend ETFs for consideration by income investors. Let’s get started with the…
WisdomTree Dividend ex-Financials Fund (NYSEArca: DTN)
Distribution Yield: 3.87%
Comment: With nearly $1.2 billion in assets under management, DTN is one of the largest ETFs on this list. As its name implies, DTN excludes the financial services sector from its lineup. Although that sector has rebound from the dark days of 2008 and has gotten back to dividend growth over the past several years, DTN has not been hindered by excluding bank stocks. Since the March 2009 market bottom, DTN has more than quadrupled, easily thumping the performances of the four largest dividend ETFs over the comparable period. [Some Strategic Beta ETFs Shine Bright]
PowerShares High Yield Equity Dividend Achievers Portfolio (NYSEArca: PEY)
Trailing 12-month yield: 3.4%
Comment: Although PEY is chock full of mature, dependable large-cap dividend payers, the ETF offers an avenue for investors looking reduced small-cap volatility with a 36.6% weight to small-caps. PEY shows a 5-year Sharpe ratio, a measure of risk-adjusted performance, of 1.44, compared to the S&P 500 index’s 1.25, according to Morningstar data. A larger Sharpe ratio corresponds with a better risk-adjusted return. The ETF has nearly $432 million in assets under management and charges 0.55% per year.
SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA)
Dividend Yield: 2.06%
Comment: A rarity among broad market ETFs that are not dedicated dividend funds, DIA, the Dow tracking ETF, does in fact pay a monthly dividend. Again, DIA is not a dedicated dividend ETF, but that does not keep it from offering consistent dividend growth. Remember that Coca-Cola (NYSE: KO), Johnson & Johnson (NYSE: JNJ) and Procter & Gamble (NYSE: PG) have three of the longest dividend increase streaks among U.S. companies. All three are Dow and DIA components.
Horizons Financial Select Sector Covered Call ETF (NYSEArca: HFIN)
Distribution Yield: 1.07%
Comment: HFIN tracks the S&P Financial Select Sector Covered Call Index, meaning the ETF is the cover call answer to the Financial Select Sector SPDR (NYSEArca: XLF). Covered call ETFs perform better in volatile conditions. Using the covered call options strategy, the ETFs sell higher strike prices on securities with greater volatility and lower strikes on low-vol stocks, capturing a greater premium.
iShares MSCI All Peru Capped ETF (NYSEArca: EPU)
Trailing 12-month yield: 1.32%
Comment: Emerging markets are increasing their footprint on the global dividend stage, but rare is the single-country emerging markets fund that pays a monthly dividend. EPU is a pleasant surprise on that front as is the iShares MSCI Colombia Capped ETF (NYSEArca: ICOL). ICOL’s rival Colombia ETFs do not pay monthly dividends. [Emerging Markets Dividends Matter]
WisdomTree SmallCap Dividend Fund (NYSEArca: DES)
Distribution Yield: 3.3%
Comment: Not only does DES sport a dividend yield that is well in excess of the Russell 2000, the benchmark small-cap index, but DES’ dividend status, monthly or otherwise, has provided a return advantage over traditional small-cap ETFs in what has been a rough year for smaller stocks. DES’ stablemate, the WisdomTree U.S. SmallCap Dividend Growth Fund (NasdaqGM: DGRS). Also pays a monthly dividend. [Small-Cap Dividend ETFs Prove Less Bad]
ETRACS Monthly Pay 2xLeveraged S&P Dividend ETN (NYSEArca: SDYL)
Current Yield, annualized: 5.47%
Comment: SDYL is an ETN, which exposes investors to potential credit risk from the issuing bank. Still, leveraged yield play on the highly followed S&P High Yield Dividend Aristocrats Index could prove too tempting for some investors to ignore.
SDYL’s income potential comes “in the form of a variable monthly coupon linked to two times the cash distributions, if any, on the index constituents, according to UBS.
The privilege of owning SDYL does not come cheap with an annual tracking rate of 0.3% that accrues on a daily basis. Holdings in the S&P Dividends Aristocrats Index include AT&T (NYSE: T), Kimberly-Clark (NYSE: KMB) and General Dynamics (NYSE: GD).
Tom Lydon’s clients own share of DTN.