Added value for your portfolio: take advantage of the benefits of dividends efficiently and at little cost. With the UBS ETF on the Dow Jones Global Select Dividend Index, you become a shareholder of leading dividend-paying companies worldwide.
Dividends offer genuine added value for investors participating in the distributions. They play a crucial role in contributing to the returns that a shareholder can additionally generate from holding stocks. This is seen in the following comparison: A person who invested USD 100 in January 1999 in the Dow Jones Global Index, which is a portfolio of global securities, saw the value increase to USD 232 by January 2015. If the USD 100 investment is made in the Dow Jones Global Select Dividend, which selects 100 leading dividend-paying companies form Dow Jones Global universe, it would have increased over the same period to USD 528. Although past performance is not a reliable indicator of future performance, this example clearly shows the power of dividends. Dividend strategy proves indeed more powerful over the longer term, nevertheless a shorter period from January 2009 to January 2015 also indicates considerable outperformance against the broad universe.
Figure 1: Dividends offer added value – comparison of the performance of the Dow Jones Global Index with the Dow Jones Global Select Dividend Index
To execute a successful dividend strategy investors face the challenge of selecting the right stocks. The various investment regions feature major differences in the amounts of dividends paid. Figure 2 shows a dividend landscape across developed economies contrasting a good year 2013 against financial crisis 2008. Not only do dividends vary over time – closely linked to country economic cycle – but dividend yields also differ considerably across countries.
Figure 2: Dividend Yields
Focusing on the names with the strongest dividends throughout various countries is therefore a sensible strategy. From the Dow Jones Global Select Dividend Index methodology viewpoint, that implies a multi-step approach leading to the selection of the best stocks. The companies are selected from the parent aggregate universe (Dow Jones Global Index) which represents approximately 95% of the global developed market and holds approx. 7,200 securities. This indexed strategy defines rules for portfolio construction, which is subject to annual revisions. In particular, a selected company must:
- be a dividend yielder
- be a dividend grower (last dividend-per-share ratio higher than the 5-year average)
- retain a portion of earnings (dividend pay-out ratio capped at 80%, or 60% for US stocks) to ensure future business growth
- be profitable (non-negative 12-month earnings-per-share)
- be liquid (for replicability)
The top 100 stocks which pass the dividend quality screens are weighted by indicated dividend yield, i.e. higher yielders receive a higher allocation (Source: Dow Jones Dividend Indices Methodology, November 2014). This approach intends to safeguard exposure to global, high quality, sustainable, higher-than-average yielding dividend stocks.
The allocation to stocks behind the Dow Jones Global Select Dividend strategy is reviewed annually (every March), meaning that exposure shifts are likely, reliant on year-on-year global dividend discrepancies. The re-allocations occur among countries and industries. Figure 3 shows a country breakdown.
Figure 3: Country Breakdown
Prior to the financial crisis, there was a substantial dominance of the UK, USA and Australia, with their share reaching 70-80%. In contrast, the country allocation – post financial crisis – appears to be more diverse and balanced. In the same way, there was a weighty and increasing allocation to the financial industry, reaching approx. 50% just prior to the financial crisis in 2008 as seen in Figure 4. In more recent years, an increased presence of more defensive stocks (telecommunication services or utilities) is apparent.
Figure 4: Sector Breakdown
The UBS ETF DJ Global Select Dividend UCITS ETF (USD) A-dis offers investors a simple and efficient way to invest in companies with a strong dividend track record, while also broadly diversifying the investment universe across developed economies.
The stocks with the highest dividend yields are chosen for the index out of 25 developed market equity indexes from the Dow Jones Global Indexes family. The index exclusively includes companies that feature an advantageous dividend profile and meet several selection criteria relating to dividends. They cannot have negative dividend growth, for example, and all dividend payouts must be easily covered by the company's profits. Because the index itself is listed in US dollars, however, investors should keep an eye on exchange rates, which can have a positive or negative impact on the investment's performance.
- Easy, flexible access to companies with a strong dividend track record at little cost
- Efficient diversification given the global selection of stocks from 25 developed economies
- Physical index replication means direct investment into 100 leading dividend-paying stocks