DIV ETF yields 7.3% and pays monthly. Here are the pros and cons

With a monthly dividend payout and a yield that beats inflation Global X Super Dividend ETF (NYSEARCA:DIV) is an enticing choice for dividend investors. However, there are some pros and cons investors should weigh in this high-yield ETF.

What does the DIV ETF do?

DIV is another ETF in the Global X monthly dividend family, which also includes the Global X SuperDividend ETF (NYSEARCA:SDIV) and the Global X SuperDividend REIT ETF (NYSE:SRET). DIV “seeks to track the performance of the Solactive Global SuperDividend Index.”

The main difference between DIV and SDIV is that while SDIV focuses on investing in the highest-yielding dividend stocks worldwide, DIV is limited to the United States by accessing fifty of the highest-yielding stocks in the US market. This gives investors less international diversification, but also lower volatility and potentially a higher quality group of holdings.

DIV is currently yielding 7.3%eclipsing S&P 500 Dividend yield of 1.7% and more than double the 10-year Treasury note yield. It even beats the inflation rate (a high hurdle of 6%), making it a compelling play from an income perspective. The ETF has a track record in sterling terms of the consistency and longevity of its payout – DIV has been paying a monthly dividend every month for over 10 years.

In addition to generating monthly dividend income, part of DIV’s strategy is also to reduce volatility by seeking out stocks with low beta relative to the S&P 500.

Solid diversification

This is a well diversified ETF. It contains 51 stocks and The 10 largest holdings of DIV make up just 22.6% of the fund, while no single position accounts for more than 2.75%.

DIV is also fairly diversified by sector. While real estate accounts for nearly 30% of holdings, materials stocks make up 16.8%, industrials 13.4%, energy 12.4% and financials 10.5%. Generally, these are lower-growth, more cyclical sectors of the stock market, but they’re also known for their dividend payouts and typically higher dividend yields.

You’ll find a fairly broad mix of holdings here – top position B&G Foods (NYSE:BGS) is a packaged food company perhaps best known for its B&G pickles and brands like Crisco and Cream of Wheat. The yield is nearly 5%, even after cutting the size of its dividend payout last year.

The energy sector is known for high yields, and among DIV’s top holdings are many energy stocks and MLPs, including San Juan Basin Royalty, MPLX LP, and Magellan Midstream Partners.

Tobacco companies have long been strong dividend payers, and tobacco companies like Altria and Philip Morris also make the list of DIV holdings. Altria and Philip Morris currently have dividend yields of 8.4% and 5.5%, respectively.

The DIV holdings also include a few other well-known US companies Large Cap Stocks like Verizon, 3M and AbbVie, and beyond those names there are many REITs and shipping companies.

Below is an overview of DIV’s top 10 holdings along with theirs Smart Scores. The Smart Score is TipRanks’ proprietary quantitative stock ranking system that ranks stocks based on eight different market factors. The result is data-driven and requires no human intervention.

A large number of the stocks listed above perform very well when using TipRanks’ Smart Score system. For example, Iron Mountain and Magellan Midstream Partners receive coveted “Perfect 10” ratings, while San Juan Basin Trust, AbbVie, USA Compression, MPLX LP and Kraft Heinz all have ratings of 8 or better, which is an outperform rating.

DIV itself has an ETF Smart Score of 7, which is a neutral rating but right on the verge of an outperform rating. Additionally, DIV’s Blogger Sentiment and Crowd Wisdom metrics are both positive.

Is DIV a buy according to analysts?

Current analyst opinion on DIV is mixed. The ETF has a Hold analyst consensus rating, but its Price target $19.56 indicates upside potential of 14%.

TipRanks uses proprietary technology to create analyst forecasts and price targets for ETFs based on a combination of the individual performance of the underlying assets. In addition, TipRanks calculates a weighted average based on the combination of all ETF holdings. The average price prediction for an ETF is calculated by multiplying the target price of each individual holding by its weighting within the ETF and summing it up.

The long-term performance of DIV

Aside from the lukewarm opinion of analysts, there’s another reason for caution when it comes to this ETF — it hasn’t been a winner over the long run. At the end of February 2023, the ETF had a one-year total return of -4.3%, which actually isn’t bad as the broader market struggled in 2022.

But if you zoom out further, DIV has returned 3.1% per year over three years, and its 1.3% per year return over five years leaves more to be desired. In fact, DIV has returned just 3.6% per year since its inception in 2011, meaning investors who’ve held the ETF would have been much better off simply investing in any of the big three U.S. indices, all of which posted record profits for a decade during that time.

take that away

DIV makes for an interesting investment opportunity thanks to its high yield and regular dividend payout. However, mixed analyst reviews and lackluster long-term performance diminish its appeal. With a yield of 7.3%, DIV can be a useful vehicle for boosting your portfolio’s returns, but given its underperforming long-term track record, I wouldn’t make a large allocation. There are also a growing number of other dividend ETFs that pay monthly distributions that investors can consider instead.

One final thought on DIV is that it looks more attractive than other Global X monthly dividend ETFs I’ve covered recently, like SDIV and SRET. Although it has a lower yield, it has outperformed these two over the long term. Also, the strong Smart Scores of many of its top 10 holdings suggest that it has a group of higher-quality constituents and that it likely has a bit more potential for growth and capital appreciation than either of those ETFs.


Source : finance.yahoo.com

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