Two Under-Appreciated Market-Beating Dividend ETFs

Investors love dividend exchange traded funds. The data support that assertion. There were nearly 170 dividend ETFs on the market at the end of June. More importantly, year-to-date inflows to dividend equity ETFs have already topped last year's number.

"Year-to-date dividend ETF inflows of $16.7bn have shown no signs of abating, already topping their 2012 level ($14.5 billion) and on their way to breaking 2011's record ($18.6 billion)," according to iShares. "Equity-income focused ETFs have gathered $62 billion since January 2010, bringing the category to an impressive $87 billion in assets at the end of June."

Parsing through the ever-expanding universe of dividend ETFs is a daunting task. That could explain why a relatively small number of dividend funds control the bulk of this segment's assets under management and why some compelling dividend ETFs often go overlooked.

One benefit to the exponential population growth among dividend ETFs is that investors have options beyond those funds that are focused on SDOG). SDOG identifies the "S&P 500 constituents with the highest dividend yield in their respective sectors providing the potential for price appreciation as market forces bring their yield into line with the overall market," according to ALPS.

From there, the 10 Global Industry Classification Standard (GICS) sectors are equally-weighted with SDOG including the five highest yielders from each sector. Current top-10 holdings include Cliffs Natural Resources (NYSE:CLF) and Pitney Bowes (NYSE:PBI), both of which cut their dividends earlier this year.

Those dividend cuts have not prevented SDOG from surging 25.6 percent year-to-date, including dividends paid. That performance is well ahead of more familiar dividend ETFs such as the SPDR S&P Dividend ETF (NYSE:SDY) and the Schwab U.S. Dividend Equity ETF (NYSE:SCHD), both of which are up 22.2 percent this year. SDOG has a trailing 12-month yield of 3.7 percent.

The $30.6 million FlexShares Quality Dividend Defensive Index Fund (NYSE:QDEF) is another unheralded dividend option for investors to consider. QDEF, which debuted last December as part of a three-ETF suite of dividend funds from FlexShares, is up 24.1 percent this year.

QDEF offers some utility as a buffer against rising interest rates. As the ETF allocates less than 10.2 percent of its combined weight to rate-sensitive telecom and utilities stocks.

Importantly, QDEF also offers ample exposure to sectors that are showing robust dividend growth, and that could bode well for the future returns offered to long-term investors that establish positions in the fund in the near-term. Financial services, technology and discretionary names, among the leaders in recent S&P 500 dividend growth, represent nearly 44 percent of QDEF's weight. The fund has a weighted average dividend yield of 3.2 percent.

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