Published October 14, 2013
The yield on the 10-year Treasury bond currently stands at 2.68 percent, which is well off the lows of the year.
Historically speaking the yield remains below the average and has a long way to go to get back to where many income investors would like to see it. As the baby boomers move into retirement mode the search for regular income becomes a priority.
Unfortunately for many, the yields on bonds are not enough to generate the income need for the golden years.
Investors have turned to equity ETFs that offer a basket of stocks that produce above-average income to combat the low bond yields. The world of equity ETFs that focus on dividends stocks has been growing as demand from investors has increased.
There are two ETFs in the group that are offering yields well above that of the 10-year Treasury and give investors the potential of capital gains via the stock market.
Global X SuperDividend ETF (SDIV)
The ETF tracks the performance of 100 equally weighted companies that rank among the highest dividend yielding equities in the world. The basket of stocks cover several continents with the U.S. the largest with an allocation of 27 percent. Australia makes up 19 percent, followed by the U.K. at 12 percent. The sector breakdown is also diverse with the financials at 18 percent, utilities at 13 percent, and telecom at 12 percent.
In 2013 the ETF has lagged the major indices with a gain of only 5 percent, but a recent rally has pushed it close to a 4-month high. What makes the ETF attractive to income-seeking investors is the 30-day SEC yield of 6.5 percent. The beat, which measures the volatility versus the S&P 500 is 1.08, which is impressive considering the yield it is offering. The expense ratio is 0.58 percent.
iShares International Select Dividend ETF (IDV)
When the U.S. is removed from the equation the end result is IDV. The ETF focuses on 100 high dividend-yielding stocks from around the globe sans the U.S. The top countries represented include Australia at 18 percent, the U.K. at 16 percent, and France at 14 percent. A total of six sectors represent at least 10 percent of the portfolio giving investors instant diversification.
Year-to-date the ETF has been able to move higher by 10 percent and is closing in on a 10-year high. The current 30-day SEC yield of 4.8 percent is nearly double that of the 10-year Treasury. The expense ratio is 0.50 percent.
Both ETFs offer investors the ability to generate income greater than the bond market, however there is added risk with the exposure to the global equity markets. Investors should not consider the ETFs as replacements for bond ETFs, but they can be utilized as income-producing vehicles.
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