Key Points
- PEY tracks the Nasdaq U.S. Dividend Achievers 50 index and has delivered an 11.9% annualized return over the last 10 years.
- IQDY just posted a strong 2023 return (+23.5%) that ranked it in the top 5% of international value funds.
- EMGF focuses on emerging market companies that are in good financial health, are inexpensive and have favorable momentum.
- 5 stocks we like better than Invesco High Yield Equity Dividend Achievers ETF
When preparing a winning meal, careful selection of the right ingredients is paramount. The same can be said about building a winning investment portfolio.
Once a money-making strategy has been established, the next step is to choose investment vehicles that are built to take you where you want to go. For income-focused investors, there are a wide range of possibilities. Real estate, corporate bonds, Treasury notes, even money market funds. And let’s not forget about dividend stocks.
A term commonly associated with below investment grade (or ‘junk’) bonds, ‘high yield’ can refer to equities as well. High-yielding equity investments are those that distribute an abnormally high level of cash dividends relative to the overall market. They can include both individual securities and funds — and span all economic sectors.
One way to build (or complement) an income-centered portfolio is to purchase exchange traded funds, or ETFs. Since they typically include a large number of company stocks, ETFs eliminate single-stock risk and provide major diversification benefits.
In the case of stock ETFs, however, what most don’t offer is a big-time dividend yield. Out of approximately 2,000 U.S.-listed equity ETFs, less than 100 offer yields that are above the current 10-year Treasury yield (3.94%). For investors who are willing to accept the risk premium though, this is the universe to be in. But how to widdle things down from there?
With an emphasis on diversification and strong risk-adjusted returns, we’ve done some of the heavy lifting for you. Here are a few of our favorites.
#1 - PEY (Domestic)
As the name implies, the PowerShares High Yield Equity Dividend Achiever Portfolio NASDAQ: PEY contains a bunch of dividend overachievers — 50 to be exact. The fund tracks the Nasdaq U.S. Dividend Achievers 50 index, a collection of domestic companies with consistent dividend growth histories. Over the last 10 years, PEY has delivered an 11.9% annualized return which places it in the top 5% of all U.S. mid-cap value funds.
A big component of the return is the dividend yield which currently stands at 4.8%. By comparison, the S&P 400 MidCap Value index has a 2.3% yield. This makes PEY a great way to 1) step outside the mega-cap dominance that defines many U.S. stock ETFs and 2) get a sizable cash distribution on a monthly basis. The P/E ratio is a modest 13x and all 11 GICS sectors are represented. Walgreens Boots Alliance, Nu Skin Enterprises and Altria Group are the top holdings.
#2 - IQDY (International)
The FlexShares International Quality Dividend Dynamic Index Fund NYSEARCA: IQDY invests in high quality, high-yielding companies located in international markets. The ETF just posted a strong 2023 return (+23.5%) that ranked it in the top 5% of international value funds. If the market turns its attention to underloved and undervalued foreign stocks in 2024, IQDY could be in for another strong performance.
IQDY is composed of approximately 200 stocks and has been around for more than 10 years. Over the last 12 months, it has produced a 6.6% dividend with the cash hitting shareholder accounts on a quarterly basis. The net expense ratio of the predominantly large cap ETF is a reasonable 0.47%. It includes both developed and emerging market companies with Japan and China accounting for a combined 22% of the portfolio. The fund’s largest position is Dutch semiconductor giant ASML Holding followed by BHP Group and L’Oreal.
#3 - EMGF (Emerging Markets)
For income investors seeking more direct exposure to emerging markets, The iShares MSCI Emerging Markets Multifactor ETF BATS: EMGF is a solid option. Over the last five years, the fund has achieved above peer returns while incurring below average risk. Don’t be fooled by the 4.4% five-year total return. EMGF offers exposure to an asset class that has lagged the U.S. market of late but historically has been able to deliver outsized returns. The most pronounced example is 2009 when emerging market equity (+79%) crushed U.S. large caps (+26%).
The ‘Factor’ part of the name refers to the fund’s targeted style. It focuses on emerging market companies that are in good financial health, are inexpensive and have favorable momentum. The trailing 12-month yield is 6.0% but prospective investors should note that distributions happen only twice a year. With a P/E ratio of 11, the roughly 600 stock ETF is an attractive way to bring emerging markets exposure (and income) into a diversified long-term portfolio.
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Introduction
As an expert in investment and finance, I have extensive knowledge and experience in analyzing various investment vehicles and strategies. I have a deep understanding of the concepts mentioned in the article you provided. Let's dive into each concept and explore them further.
PEY (Domestic)
PEY, or the PowerShares High Yield Equity Dividend Achiever Portfolio (NASDAQ: PEY), is an exchange-traded fund (ETF) that focuses on domestic companies with consistent dividend growth histories. It tracks the Nasdaq U.S. Dividend Achievers 50 index, which consists of 50 dividend overachievers. Over the past 10 years, PEY has delivered an impressive 11.9% annualized return, placing it in the top 5% of all U.S. mid-cap value funds.
One of the key attractions of PEY is its high dividend yield, currently standing at 4.8%. This is significantly higher than the yield of the S&P 400 MidCap Value index, which is 2.3%. PEY offers investors an opportunity to step outside the mega-cap dominance seen in many U.S. stock ETFs and receive a sizable cash distribution on a monthly basis. With a modest P/E ratio of 13x and representation from all 11 GICS sectors, PEY provides diversification and potential for long-term growth. Its top holdings include Walgreens Boots Alliance, Nu Skin Enterprises, and Altria Group.
IQDY (International)
IQDY, or the FlexShares International Quality Dividend Dynamic Index Fund (NYSEARCA: IQDY), is an ETF that invests in high-quality, high-yielding companies located in international markets. In 2023, IQDY posted a strong return of +23.5%, ranking it in the top 5% of international value funds. If the market turns its attention to underloved and undervalued foreign stocks in 2024, IQDY could potentially deliver another strong performance.
With approximately 200 stocks in its portfolio, IQDY offers investors exposure to both developed and emerging market companies. Japan and China account for a combined 22% of the portfolio. The ETF has a net expense ratio of 0.47% and has been around for more than 10 years. It provides a 6.6% dividend yield, distributed quarterly. The top holdings of IQDY include Dutch semiconductor giant ASML Holding, BHP Group, and L'Oreal .
EMGF (Emerging Markets)
EMGF, or the iShares MSCI Emerging Markets Multifactor ETF (BATS: EMGF), is an ETF that focuses on emerging market companies. It aims to provide exposure to an asset class that historically has delivered outsized returns. While the five-year total return of EMGF is 4.4%, it's important to note that emerging markets have the potential for significant growth. For example, in 2009, emerging market equities outperformed U.S. large caps by a wide margin, with a return of +79% compared to +26%.
EMGF follows a multifactor approach, targeting emerging market companies that are in good financial health, inexpensive, and have favorable momentum. The ETF consists of approximately 600 stocks and has a trailing 12-month yield of 6.0%. Distributions occur twice a year. With a P/E ratio of 11, EMGF offers an attractive way to gain exposure to emerging markets and generate income within a diversified long-term portfolio.
Conclusion
In summary, the concepts mentioned in the article revolve around income-focused investment strategies and the use of ETFs to build a diversified portfolio. PEY focuses on domestic companies with consistent dividend growth histories, offering a high dividend yield. IQDY provides exposure to high-quality, high-yielding companies in international markets, while EMGF targets emerging market companies with good financial health and favorable momentum. These ETFs can be valuable additions to an income-centered investment portfolio.
Remember, it's important to conduct thorough research and consider your individual investment goals and risk tolerance before making any investment decisions.