{"id":2817,"date":"2021-12-27T18:46:41","date_gmt":"2021-12-27T18:46:41","guid":{"rendered":"http:\/\/blog.valuengine.com\/?p=2817"},"modified":"2021-12-27T18:52:01","modified_gmt":"2021-12-27T18:52:01","slug":"ultra-dividend-etfs","status":"publish","type":"post","link":"http:\/\/blog.valuengine.com\/index.php\/ultra-dividend-etfs\/","title":{"rendered":"Ultra Dividend ETFs"},"content":{"rendered":"

The last Edition of this column focused on Dividend ETFs, each of which had the word Dividend in its name.\u00a0 The analysis focused on identifying the best overall ETF for conservative dividend-oriented investors as an alternative core holding that had more than twice the dividend yield of the S&P 500 while collecting comparable, if somewhat lower total returns.<\/span><\/p>\n

Our top pick was <\/span>SCHD<\/b>, the Schwab US Dividend ETF despite the fact that <\/span>SDOG (the ALPS Sector Dividend Dogs)<\/b> had a higher dividend, 3.5% as compared with 3.0%.\u00a0<\/span><\/p>\n

That said, there are investors who have reached a point in their lives where they are no longer interested in capital appreciation and are focused only on income. This column is intended for them because there are, in fact, ETFs that provide more income than any ETF with the word dividend in the title.<\/span><\/p>\n

Here are a few examples and their dividend yields:<\/span><\/p>\n

QYLD<\/b>, Global-X Nasdaq-100 Covered Call ETF, <\/span>11.3%<\/b><\/p>\n

BIZD<\/b>, Van Eck BDC Income ETF, <\/span>7.9%<\/b><\/p>\n

PCEF, <\/b>Invesco Income Composite ETF, <\/span>6.8%<\/b><\/p>\n

KBWY, <\/b>Invesco Premium Yield Equity REIT ETF, <\/span>5.6%<\/b><\/p>\n

All of the approximately 5,000 stocks, 16 sector groups, 140 industries, and 500 ETFs have been updated on\u00a0www.ValuEngine.com<\/a><\/strong><\/h5>\n
Free Two Week Trial to all 5,000 plus equities and ETFs covered by ValuEngine\u00a0HERE<\/a><\/strong><\/h5>\n

In comparison, the highest current yield we could find in an ETF including the word \u201cDividend\u201d is:<\/span>
\n<\/span>DIV, <\/b>Global-X Super Dividend ETF, <\/span>5.4%<\/b><\/p>\n

All four ETFs derive these extraordinary yields in unconventional ways.<\/span><\/p>\n

QYLD <\/b>matches QQQ’s Nasdaq-100 stock exposures but earns income by selling NDX index call options and passes it on to investors net of fees.<\/span><\/p>\n

BIZD <\/b>tracks a concentrated index of US publicly-listed private equity investment companies known as Business Development Companies or BDCs. The ETF buys shares of firms that in turn invest in the debt and equity of mid-sized private firms.<\/span><\/p>\n

PCEF <\/b>is invested in three types of yield-focused closed-end funds: investment-grade fixed-income, high-yield fixed-income, and option-writing.\u00a0<\/span><\/p>\n

KBWY <\/b>uses an algorithm that selects mostly commercial and small cap REITs (Real Estate Investment Trusts), then weights these holdings by dividend yield.<\/span><\/p>\n

If the 5.4% dividend yield of <\/span>DIV <\/b>can be considered Super-high, then these ETFs can only be considered Ultra-high as in the Latin Phrase <\/span>non plus ultra <\/span><\/i>(\u201cnone higher\u201d).<\/span><\/p>\n

Financial Advisory Services based on ValuEngine research available: \u00a0\u00a0<\/strong>www.ValuEngineCapital.com<\/a><\/strong><\/h5>\n

This table compares what tradeoffs investors must take, if any, in total return or volatility to earn an income stream higher than core dividend ETFs.\u00a0 We include VOO, the Vanguard S&P 500 ETF for comparative purpose.\u00a0 Positive outliers in each category are bolded in black.\u00a0 Negative outliers are in red.<\/span><\/p>\n

Comparison Table as of Dec. 17, 2021<\/span><\/p>\n

\"\"<\/p>\n

Current ValuEngine reports on these ETF\u2019s can be viewed\u00a0HERE<\/a><\/strong><\/h5>\n

The top line reveals some very attractive features for QYLD.\u00a0 <\/b>Not only does it have the top dividend yield by a wide margin but it has the least volatility.\u00a0 Its approximated Sharpe Ratio comparing total return to risk is very similar to SCHD, <\/b>the ETF we recommended last week for some substitute core allocation for investors needing more income than VOO provides.\u00a0\u00a0<\/b><\/p>\n

The graph below illustrates the risk-return tradeoff of the 8 ETFs included in the analysis.\u00a0 For visual comparative purposes, we multiplied yield by 100 and the Sharpe Ratio by 10.\u00a0<\/span><\/p>\n

\"\"<\/p>\n

Key Findings:<\/span><\/p>\n

    \n
  1. During the past five years. <\/span>VOO<\/b>, based on buying and holding the S&P 500, has been the best growth vehicle but its paltry 1.3% dividend yield makes it unsuitable for income-oriented investors.\u00a0 It also has the lowest expense ratio.\u00a0 Readers of this blog know that most investors should buy new shares of Vanguard\u2019s <\/span>VOO <\/b>or <\/span>IVV <\/b>from iShares<\/span> in lieu of <\/span>SPY <\/b>for two-reasons: a six-basis-point lower fee combined with a more efficient structure that can reinvest dividends and lend its stocks.<\/span><\/li>\n
  2. SCHD <\/b>provides an attractive alternative to <\/span>VOO <\/b>for income and growth investors with comparable growth and an income stream to the ten-year US Treasury bill.\u00a0 It is also cost-efficient with the lowest expense ratio available for an ETF with a dividend tilt.\u00a0 In fact, <\/span>SCHD <\/b>also has a lower expense ratio than <\/span>SPY.\u00a0\u00a0<\/b><\/li>\n
  3. Although the valuations are not shown on the prior table, <\/span>SDOG <\/b>has the best valuation metrics of the ETFs reviewed here and a more attractive yield for an income and growth investor. Its volatility is higher but within acceptable ranges. Its diversified security selection consisting only of five S&P 500 holdings from each S&P sector gives it less concentration risk than <\/span>DIV, KBWY <\/b>and <\/span>BIZD<\/b> as we will see shortly.\u00a0 However, those three ETFs do also supply considerably higher dividend yields.<\/span> \u00a0So, if income is actually your only objective, <\/span>SDOG <\/b>will not provide nearly as good an income stream.\u00a0 The expense ratio of 0.40% is also much higher than <\/span>SCHD <\/b>and on the high end for other <\/span>ETFs <\/b>that combine mainstream holdings with dividend tilts.<\/span><\/li>\n
  4. DIV, <\/b>from the Global X family of thematic ETFs, delivers a much higher yield than <\/span>SCHD: <\/b>5.4% as compared with 2.9%. Otherwise <\/span>SCHD <\/b>and <\/span>SDOG <\/b>are both superior in every way.\u00a0 <\/span>DIV <\/b>is less diversified, more volatile, has historically provided lower total returns and has higher expense ratio at 0.45%.\u00a0 Therefore, with a ValuEngine rating of 1 (strong sell), <\/span>DIV <\/b>is not relatively attractive to income and growth investors. Moreover, since there are four more ETFs here with considerably higher yields, income-focused investors also have better choices available to them than <\/span>DIV.\u00a0<\/b><\/li>\n
  5. KBWY, <\/b>Invesco KBW Premium Yield Equity REIT ETF, is another ETF with little to recommend beyond its 5.6% dividend yield although the fact that it pays out its income on a monthly basis may interest some.\u00a0 \u00a0 <\/span>KBWY <\/b>is highly volatile, has posted lower total returns than most of its REIT ETF peers and considerably lower than <\/span>SCHD.\u00a0 <\/b>Its dividend-yield weighting scheme produces its superior income stream but also contributes to volatility and low quality ratings.\u00a0 REIT ETFs are frequently mentioned as alternative income sources.\u00a0 However, even if income is the only consideration, three better alternatives follow.<\/span><\/li>\n
  6. PCEF, <\/b>Invesco\u2019s CEF Income Composite ETF,<\/span> is a very interesting alternative for income and growth investors and income-only investors.\u00a0 Its 6.9% yield combines with lower volatility than <\/span>VOO <\/b>and all but one of the ETFs we will review today.\u00a0 It is also well diversified with more than 100 holdings and a number of quality screens integrated into the algorithmic index developed by Alerian S-Network with input from closed-end fund experts.\u00a0 It provides about half as much growth as <\/span>VOO<\/b> but has the fourth-best sharp ratio of this group because of its low volatility.\u00a0 The only daunting statistic in our analytic chart is the 2.34% expense ratio.\u00a0 However, the management fee is 0.50% as the 2.34% includes the implicit fees already reflected in the prices of the underlying closed end funds.\u00a0 Nevertheless, <\/span>PCEF <\/b>is a fine choice for dividend-first investors also looking for some capital growth.<\/span><\/li>\n
  7. BIZD, <\/b>the Van Eck BDC Income ETF provides a dividend yield of 8.3%.\u00a0 This, in itself, should put it in the potential selections set of Income-first and income-only investors.\u00a0 Additionally, <\/span>BIZD <\/b>has good momentum with the highest one-year total return of any ETF in our table.\u00a0 The downsides are very volatile returns, lack of diversification and a shocking expense ratio of more than 10% derived primarily from the acquired fund fees of its underlying BDCs because Van Eck\u2019s management fee is just 0,40%, competitive for specialty asset class ETFs.\u00a0 One caveat is that BDCs are pass-through securities with income that can be taxed at a higher rate than ordinary dividends.\u00a0 Investors are cautioned to check this aspect out before buying.<\/span><\/li>\n
  8. QYLD, <\/b>Global X NASDAQ 100 Covered Call ETF (QYLD) has been called a hidden gem on Seeking Alpha and TalkMarkets by a number of blog columnists. I concur. Its yield of 11.5% is tremendously attractive for income-first and income-only investors.\u00a0 Its volatility is the lowest in the table with a highly competitive Sharpe Ratio.\u00a0 The ETF seeks to provide investment results that closely correspond, before fees and expenses, generally to the price and yield performance of the CBOE NASDAQ-100\u00ae BuyWrite V2 Index The CBOE NASDAQ-100\u00ae BuyWrite Index is a benchmark index that measures the performance of a theoretical portfolio that holds a portfolio of the stocks included in the NASDAQ-100\u00ae Index, also the basis for QQQ,\u00a0 and “writes” (or sells) a succession of one-month at-the-money NASDAQ-100\u00ae Index covered call options. QYLD has an expense ratio of 0.60%, which is 21% lower than its category. The same caveat applies as with <\/span>BIZD,\u00a0 <\/b>Have your tax professional check out the implication for the after-tax income your account will receive. As I always warn, read and understand the fact sheet and Summary Prospectus before buying any ETF.\u00a0 The devils are in the details.<\/span><\/li>\n<\/ol>\n

    My personal recommendation at this time is <\/span>QYLD <\/b>to dividend-first equity investors.\u00a0 Its 11.5% yield and persistent stability makes it ideal for income-first and income-only investors.\u00a0 If income is your king, QYLD should make the perfect queen.\u00a0\u00a0<\/span><\/p>\n

    Herb Blank<\/p>\n

    Senior Quantitative Analyst<\/p>\n

    ValuEngine, Inc<\/p>\n

    www.ValuEngine.com<\/a><\/p>\n

    _______________________________________________<\/p>\n

    All of the approximately 5,000 stocks, 16 sector groups, 140 industries, and 600 ETFs have been updated on\u00a0www.ValuEngine.com<\/a><\/h5>\n
    Financial Advisory Services based on ValuEngine research available through\u00a0ValuEngine Capital Management, LLC<\/a><\/h5>\n
    Free Two Week Trial to all 5,000 plus equities covered by ValuEngine\u00a0HERE<\/a><\/h5>\n
    Subscribers log in\u00a0HERE<\/a><\/h5>\n

     <\/p>\n","protected":false},"excerpt":{"rendered":"

    The last Edition of this column focused on Dividend ETFs, each of which had the word Dividend in its name.\u00a0 The analysis focused on identifying the best overall ETF for conservative dividend-oriented investors as an alternative core holding that had more than twice the dividend yield of the S&P 500 while collecting comparable, if somewhat … Read more<\/a><\/p>\n","protected":false},"author":7,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[130,1,39],"tags":[1922,1925,1916,1926,1760,1761,1719,1912,1731,1924,1471,1927,1923,1510,1713,1921,1748,1913,1771,1656,1659,1768],"_links":{"self":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts\/2817"}],"collection":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/comments?post=2817"}],"version-history":[{"count":4,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts\/2817\/revisions"}],"predecessor-version":[{"id":2823,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts\/2817\/revisions\/2823"}],"wp:attachment":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/media?parent=2817"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/categories?post=2817"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/tags?post=2817"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}