Investment Thesis
Dividend ETFs are a popular income source for investors who are seeking a regular stream of cash. It is common for dividend ETFs to have a lower beta, because a dividend generally shows that a company is financially healthy enough, thus the investment is seen as less risky by market participants. Investors also appreciate that dividend ETFs offer more control over their money, and perceive them as offering a way to address the effects of inflation because the payouts are made regularly. However, in some unfortunate situations, the company can turn out to be a dividend trap that lures investors by providing a high yield. Another drawback of dividend investing is the price performance of dividend-paying stocks over long periods of time. As they tend to reward shareholders through dividends, these companies generally invest less in future growth opportunities and therefore have a hard time outperforming the market. In this article, I will review the Global X SuperDividend ETF (NYSEARCA:SDIV), which provides exposure to a basket of international high dividend-yielding equities.
Strategy Details
The Global X SuperDividend ETF tracks the performance of the Solactive Global SuperDividend Index. SDIV invests in 100 of the highest dividend-paying equities around the world. SDIV makes distributions on a monthly basis and has made distributions each month for over 10 years. It is therefore an interesting ETF for the income investor who expects to receive a high yield on his investment and a steady stream of cash. Moreover, investing in equities from around the globe can help diversify both geographic and interest rate exposure.
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Portfolio Composition
From the sector allocation chart below, we can see the index places a high weight on Financials (representing around 29.0% of the index), followed by Real Estate (accounting for 26% of the index) and Energy (representing around 9.5% of the fund). The largest three sectors have a combined allocation of approximately ~65%.
In terms of geographical allocation, the top ten countries represent approximately 100% of the portfolio. The United States accounts for 31.3%, whereas other countries such as Brazil and Australia seem to be underrepresented given the low weight.
SDIV invests ~72% of the funds into mid and small-cap value issuers, characterized as small and mid-sized companies where value characteristics predominate. These issuers generally have a market capitalization below $8 billion. The second-largest allocation is large-cap value equities. It is interesting to see that SDIV allocates approximately 86% of the funds to value stocks and nothing to growth stocks. This is unsurprising since value stocks generally generate excess cash and are therefore capable of returning capital to shareholders, whereas growth stocks will reinvest all their free cash flow into growth opportunities.
The fund is currently invested in 100 different stocks. The top ten holdings account for 14% of the portfolio, with no single issuer exceeding 2%. All in all, I would say that SDIV is very well-diversified across issuers.
Since we are dealing with equities, one important characteristic is the valuation of the portfolio. According to Morningstar, the fund currently trades at an average price-to-book ratio of 0.8 and at an average price-to-earnings ratio of ~6. The price-to-earnings ratio seems very low so I'm not sure how reliable the data is. However, if we focus on the price-to-book ratio, it is pretty clear that this ETF is cheap, which could make it a good pick for value investors or dividend investors.
Is This ETF Right for Me?
SDIV has a distribution rate of 9%. Given the high dividend yield, this ETF is suitable for the dividend investor looking for a high yield investment. That said, you should keep an eye on the dividend growth history, which clearly shows a negative trend since 2016. As a dividend investor, the last thing you want is your monthly dividend payment to start shrinking.
I have compared below the price performance of SDIV against the price performance of the Vanguard Total World Stock ETF (NYSEARCA:VT) over 5 years to assess which one was a better investment. Over that period, SDIV underperformed VT by a 99 percentage point margin. Despite paying a much higher ETF than VT, you would still be better off by owning VT after all. To put SDIV's performance into perspective, a $100 investment in this ETF five years ago would now be worth $56.82. This represents a compound annual growth rate of -10.7% excluding dividends, which is a horrible return relative to the market.
If we take a step back and look at the performance from a 10-year perspective, the results don't change much. In the below chart, we can see the S&P 500 clearly outperforming SDIV. I am personally concerned by SDIV's lack of capital appreciation over such a long period of time. Since the ETF is actually destructing rather than creating value for shareholders over long periods of time, I believe a large number of past components were in fact dividend traps that were added to the index for their juicy dividend yield but eventually delivered disappointing returns.
Key Takeaways
In summary, SDIV provides exposure to a basket of international high dividend-yielding equities. This ETF is well-diversified, both across sectors and issuers, and can be used to generate a steady stream of income. Given its high distribution rate, SDIV has been one of the top picks of dividend investors. However, I would personally keep an eye on the dividend growth going forward to make sure the strategy keeps a stable dividend amount over time. I'm also concerned by the negative price performance over the years which resulted in mediocre returns. I believe a large number of past components were dividend traps and I don't see anything that could prevent SDIV from adding such stocks to the portfolio going forward. Despite SDIV's cheap valuation, I think there are better opportunities in the market at the moment.
This article was written by
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About me:Value-oriented investor, seeking low-risk investments with the potential to deliver high returns. I like to analyze commodities, ETFs, and cash-flow positive businesses that have a moat and growth opportunities.
Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
