Exposing the WORST Monthly Dividend ETF (SDIV)

Despite a monthly dividend, the SDIV Super Dividend ETF is super BAD... here's why.

00:00 - Intro
1:12 - SDIV Diversification
3:08 - SDIV Methodology
5:55 - SDIV Returns (It's Ugly)
6:58 - Dividends & Taxes
8:30 - Lessons from SDIV

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If you’ve ever looked for a monthly dividend ETF, you’ve no doubt come across SDIV. It has historically paid around a 7% annual yield in the form of monthly dividends. With this yield, SDIV is one of the highest-yielding dividend ETFs out there, especially among monthly dividend payers. And although it may sound backwards, this is the exact reason why it’s one of the worst dividend ETFs to invest in.

We’ll start by reviewing some of the key stats on SDIV. For starters, we’ve got an expense ratio of .59%. In terms of the portfolio, SDIV offers a globally diversified portfolio of 100 holdings. Surprisingly, just 30% of the fund is made up of US stock holdings. The next thing to point out is the sector diversification: over 40% of the portfolio is allocated to Real estate, REITs and mortgage REITs. This isn’t far from what I expected, as these are very much yield-oriented investments known for high and regular cash flow. However, this means only half of the portfolio is invested in non-real estate equities, and as a result, investors are missing out on the diversification benefits that an appropriate sector balance would provide.

Just this quick look at the portfolio characteristics reveals that SDIV is improperly diversified, at least in comparison to total market standards.

Their key strategy is to just buy the highest stocks by dividend yield. SDIV starts with determining the pool of stocks that are eligible to be included in the index. To be eligible for selection, the stock first must yield above 6%, but less than 20%. They also say that the dividend forecast “must be at least stable”. Finally, they exclude BDCs, Closed-end funds & partnerships.

Once they have narrowed down their stock pool to fit these qualifications, they select the 100 highest stocks by dividend yield. Then, each stock is given an equal weight in the portfolio at 1%.

Ideally, they would identify some metrics like dividend payout ratio, which shows what percentage of a company’s cash is being used to pay dividends. They’re not looking for dividend increases, either. Both of these are simple screening metrics that speak to the safety of a stock’s dividend distribution. Without these, SDIV is simply selecting the highest yielding stocks and ignoring all other qualities.

The main problem here is that they are very likely selecting companies that are at risk of reducing their dividends or cutting them altogether. A company that cannot afford its dividends may also be struggling to fund its normal operations, which could drive the stock price down over time.

So overall, SDIV works to build a high yield portfolio, but it comes with significant risk. The equal weighting of the portfolio will help balance this risk a little bit, but as you’ll see by the numbers, it doesn’t do enough to protect investors’ wealth or grow their monthly dividends.

But there's still some lessons here even though I wouldn't personally invest in SDIV.

In fact, I think SDIV teaches a valuable lesson in chasing yield. I’m sure this is a common mistake that many beginner investors make, because passive dividend income is so appealing. Another interesting lesson here is that not all diversification is good diversification. Beyond the number of holdings, I think SDIV gives a good reminder to look at the bigger picture of your portfolio, including sector allocation, market cap allocation and international diversification. And finally, I think SDIV teaches the importance of doing your research. Taking a closer look at the strategies at play is super important if you want to hold something for the long-term.

#Investing #DividendInvesting #SDIV

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DISCLAIMER: NOT FINANCIAL ADVICE.
The content in this video should not be used as the basis for any investment decision, as it is for entertainment purposes only. Additionally, some of the links contained in this description are affiliate links. The promotions advertised may change & I may earn a commission should you choose to purchase or sign up at the links provided.