Finding the World's Best Double-Digit Yield Producers

By: Nathan Slaughter
Editor, The ETF Authority
Learn more about The ETF Authority (click here)

Published: September 1, 2008

Launched by First Trust in 2007, First Trust DJ Global Select Dividend (AMEX: FGD, $23.22) mirrors the Dow Jones Global Select Dividend Index. This equity income benchmark tracks stocks trading within the world's 24 largest developed markets, weeding out those that pay little or no dividends.

To tighten the criteria, prospective members must also have a current dividend that is equal to or greater than its five-year average -- which means that components are likely raising their payouts rather than lowering them. Finally, for added stability, companies must also have reasonable payout ratios below 80%; those paying out a greater percentage are generally more susceptible to dividend cuts if profits begin to decline.

The end result is a portfolio of 100 companies showcasing some of the safest and most generous dividend distributions on the planet. Not surprisingly, most of these reside outside the U.S. So while solid domestic companies like Altria (NYSE: MO) are included, the bulk of the portfolio (85%) is invested outside the U.S. in higher-yielding foreign companies such as Macquarie Infrastructure (NYSE: MIC) and Canadian Oil Sands Trust. As with most equity income funds, financials soak up a large percentage of assets (above 40%). So readers who already own a financial sector fund may want to be cautious about potential overlap.

Australia currently gets top billing at nearly one-quarter of the fund's assets, while Great Britain, Canada and Hong Kong are also well represented.

Just as dividend-paying stocks have traditionally outperformed non-payers in the U.S., the numbers tell a similar story overseas. Heading into 2008, The DJ Global Select Dividend Index had topped the DJ World Developed Markets Index in seven of the prior eight years -- and by no small margin either.

In fact, between the end of 1998 through June 2008, a $10,000 investment in the Global Select Dividend Index would have tripled to a current value of $35,200 -- about $20,000 more than the same amount invested in the broader Developed Markets Index.

Fortunately, this fund has been marked down in the recent market retreat and is now trading below $24 per share. So now, its steady quarterly payouts of $0.68 per share equate to a rich yield of 11.7% -- up from just 8% last December.

FGD is a great fund trading at an attractive price. And if you're looking for a low-cost, tax-efficient portfolio of global dividend-paying stocks -- this is it.

Nathan Slaughter
Editor
The ETF Authority

About The ETF Authority

The mission of The ETF Authority is to help our readers identify today's most profitable ETFs and closed-end funds. (Learn More)

About Nathan Slaughter

Nathan Slaughter has developed a long and successful track record over the years by investing in both exchange-traded funds (ETFs) and deeply discounted value securities. When it comes to ETFs, Nathan has created a proprietary ranking system that helps him zero in on today's most promising funds.

Nathan's previous experience includes a long tenure at AXA/Equitable Advisors, where he provided comprehensive investment advisory services to small businesses and high net-worth clients. He also honed his research skills at Morgan Keegan, where he performed asset allocation, retirement planning, and consultative portfolio management services.

Several years ago Nathan switched gears and decided to devote his time exclusively to financial analysis and writing. He has since published hundreds of articles for a variety of prominent online and print publications, and he now writes exclusively for StreetAuthority.com.

Nathan's educational background includes NASD series 6, 7, 63, & 65 certifications, as well as a degree in Finance/Investment Management. He currently resides in Shreveport, LA with wife Julie and sons Aidan and Riley.

To learn more about Nathan Slaughter's premium investing newsletter -- The ETF Authority -- please visit this link.

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