With inflation at 6.4%, many investors are looking for investments that can beat the rate of inflation. Global X Super Dividend ETF (NYSEARCA: SDIV) not only helps investors beat inflation, but it more than doubles the massive Dividend Yield 14.5%,
SDIV also holds additional appeal for income-seeking investors because, unlike many other dividend stocks and ETFs that pay dividends quarterly, this ETF pays dividends every month.
However, there are also some potential drawbacks that investors should be aware of. Let’s dive into the ins and outs of this ETF’s surprising returns.
SDIV ETF Strategy
SDIV generally seeks to match the results and yield of the Solactive Global SuperDividend Index before fees and expenses. Its strategy is to invest in some of the highest yielding dividend stocks across the globe.
Investing in these high-yield stocks gives SDIV a 14.5% yield that is more than double the rate of inflation, roughly nine times the average yield. S&P 500and more than three times the risk-free return that investors can earn from 10-year Treasuries.
There’s something to be said for SDIV’s track record when it comes to the consistency of its dividends — since its inception in 2011, SDIV has made monthly dividend payments every month for 11 consecutive years.
SDIV’s Top Holdings: Spanning the Globe
SDIV is extremely diverse. It has 130 stocks, and its Top 10 Holdings make up just 13.9% of assets. Also, no holding account for more than 1.7% of the fund. Additionally, SDIV’s holdings are more diversified – both geographically and by what industry they belong to.
Only 29.7% of the fund’s holdings are based in the United States, so if you’re a US investor looking for international exposure, the SDIV suits you in spades. Geographically, the Fund’s second largest exposure is Brazil (14%), followed by Hong Kong (11.2%), China (9.7%), and Great Britain (6.0%). The ETF’s high level of exposure to international equities gives it great diversification, but it has also been a headwind in recent times as the strong dollar has been a challenge for international stocks.
An additional note on geography is that the combined exposure of over 20% to China and Hong Kong was a headwind last year due to China’s zero-covid policy, this exposure could be a tailwind this year as China eases through these lockdowns. emerges.
China is one of the few major global economies currently easing monetary policy. China’s central bank has been injecting liquidity into domestic markets to stimulate economic activity, which could further boost the SDIV.
Many of SDIV’s top holdings are names that may not be immediately familiar to most investors. The top holding, BW LPG, and fellow top 10 holding, Golden Ocean, are both involved in the shipping industry. BW LPG has an impressive 14.7% yield, and Golden Ocean Yield 17.1% on a trailing-12-month basis. BW LPG is based in Singapore, and Golden Ocean is based in Bermuda, highlighting the disparate nature of SDIV’s holdings.
Top 10 Holding Omega Healthcare Investors is a US-based healthcare REIT yield 9.8%, Other Top 10 Locations, Arbor Realty (NYSE: ABR), is a US-based company investing in structured financial products in the real estate market. Shares of ABR currently yield 12.2%.
Energy is an industry associated with high dividend yields, so it’s not surprising that it’s well-represented in the Global X Superdividend ETF through holdings such as Brazilian oil giant Petrobras — though note that these are Petrobras’ favorites. Are shares, not common equity – Antero midstream, and diversified gas and oil.
See below for an overview of SDIV’s top holdings using the TipRanks Holdings tool.
risks to consider
While SDIV’s 14.5% yield is hard to beat, this ETF is not without its risks that investors should be aware of. These risks arise from the fund’s performance in the recent past, which I’ll highlight in the next section. Nonetheless, as you can see from the list of holdings above, there aren’t many blue-chip names here.
When stocks’ yields are so high, in many cases, it can be a sign that something is wrong and the market doesn’t believe that dividend payments are sustainable. Most companies aren’t prepared for 14% dividend yields, so in many cases, such a high yield could be a sign of a falling share price.
It goes without saying, but investors want to find stocks with attractive dividend yields because the dividend payout is increasing year after year, not because the share price is falling over time.
A quick look at some SDIV holdings illustrates this point. Shares of Golden Ocean have declined nearly 75% over the past decade, while shares of Omega Healthcare Investors have fared better but are still down 4.7% over the same time frame.
Investors who chased high returns in these names not only underperformed the broader market over the last 10 years, but also lost a significant amount of their principal, in the case of Golden Ocean.
Omega Healthcare Investors and Golden Ocean offer SMART scores of 5 and 7 out of 10, respectively, so the market is neutral on their prospects from here on out. smart score TipRanks has a proprietary quantitative stock scoring system that evaluates stocks on eight different market factors such as Wall Street analyst ratings, corporate insider trading, hedge fund activity and more. Stocks with a SMART score of 8 or higher receive an “Outperform” rating.
SDIV lagged the broad market year-to-date with a 3.7% loss compared to a 1.3% gain for the S&P 500. SDIV is projected to lose 26.4% in 2022, slightly worse than the S&P 500.
Over the past five years, the SDIV is down 63.5%, and over the past decade, it is down 67%. Meanwhile, the S&P 500 is up 38.8% and 147.5% over the past five and 10 years, respectively.
Therefore, while SDIV holders have collected some attractive dividend payments over the years, the value of their investment has decreased significantly over time and underperformed the broader market. Investors also had to pay an expense ratio of 0.58% every year during this period.
SDIV’s hefty 14.5% dividend payout is very attractive to income-oriented investors, and its monthly payout schedule complements this appeal. However, there aren’t too many blue chip holdings here, and the ETF hasn’t performed very well over the past decade.
That’s not to say that ETFs can’t outperform from here, and SDIV also deserves credit for its 11-year streak of monthly payouts, but investors should be aware of the potential risks.
This is why an investor interested in SDIVs and in generating some significant income from their portfolio on a monthly basis would be best served to make SDIVs a component of a well-diversified portfolio. For example, investors can increase their portfolio’s yield by allocating a small portion of it to SDIV, but I would be cautious about making a large allocation to it based on the factors discussed above.