Amidst the current period of elevated inflation, investing in dividends can offer an additional source of regular income. VanEck’s Dividend ETF searches out the top 100 income payers globally, selected for their dividend yields, resilience and likely growth. Dividend resilience is a particular focus, with preference given to those companies that have consistently paid dividends and where earnings appear to comfortably cover future dividends.
Risks of a Dividend ETF: You may lose the total amount of your investment due to foreign currency risk and equity market risk as described in the Main Risk Factors, KID and prospectus.
How can you generate additional income in an age of high inflation?
High dividend equities may provide a valuable solution. For income investors, VanEck Morningstar Developed Market Dividend Leaders ETF offers access to this revenue stream.
When a publicly traded company earns a profit, it can decide to distribute a proportion of the earnings to shareholders as a reward. This reward is called a cash dividend.
Regular cash dividends are paid on a predefined schedule and the amount can typically be estimated using the company’s dividend policy. In case of outstanding financial results or various proceeds from M&A activities (e.g. selling a subsidiary company at a profit), the company can decide to reward its shareholders by distributing a special cash dividend. For more insights on dividends, visit our ETF Academy.
Besides cash payments, the company can also decide to issue the reward in the form of a stock dividend. This type of distribution is as good as cash but no tax has to be paid on such proceeds in some jurisdictions.
Over a longer period, dividends constitute an important part of total return. For instance, S&P 500 performance after the dividend reinvestment is twice its price return over the last three decades. The VanEck Dividend ETF pays out the dividend to investors instead of reinvesting it in the fund. Investors can opt to use the proceeds to buy additional ETF shares.
Source: VanEck
Historically, higher dividend-paying stocks have shown relatively higher returns (as can be seen in the chart below). For many reasons, we believe that a high dividend payout disciplines management. If a firm has too much free cash flow at its disposal, managers might be tempted to undertake value-destroying projects or spend on excessive salaries or perks.
Dividends are also assumed to be one of the defensive factors that perform well during times of macroeconomic instability.
Past performance is not a reliable indicator of future performance. This also holds for historical market data
Source: VanEck analysis using data from Kenneth French. Portfolios are split based on dividend yields and include all NYSE, AMEX and NASDAQ Stocks. Monthly returns are used to calculate annualized data for the 50 years ending November 2022. A geometrical average is used to calculate the performance.
Source: VanEck. The data has been calculated by dividing the full year dividend per ETF by the year end price per ETF. The chart does not represent the total return of the strategy as it consists of capital gains and dividend distributions. Potential gains from dividend distribution can be offset by price performance. Numbers represent gross dividends, assuming no withholding taxes are applied. MSCI World is an index and is used here solely for benchmarking purposes. You cannot invest in an index.
Past performance is not a reliable indicator of future performance. Data as of 14/05/2024.
European investors have a choice of around 15 high dividend ETFs, with some focusing on selecting companies with the highest dividend yields and others prioritizing dividend growth. At VanEck, we believe that combining both strategies can generate the best performance for investors. Therefore, this ETF filters for yields and dividend growth to deliver a high and steadily growing income flow. However, it's important to note that investing in equities involves risk, and we generally recommend long-term investing, ideally for over five years, to help mitigate that risk.
This Fund harnesses the advantages of ETFs – such as easy trading and low costs – to deliver regular income. We identify high-quality dividend-paying companies globally and diversify across them to limit risk. The ETF passes through the dividends received from its holdings. Typically, this occurs four times a year. The dividend, however, is not guaranteed. In the case of too few dividends received, one or multiple distributions can be skipped.
The VanEck Morningstar Developed Market Dividend Leaders ETF tracks an index of global equities with high dividend yields. It is developed by Morningstar, one of the prominent global market research firms. The index has the following parameters:
For each equity, a dividend has been paid in the last 12 months. Only proven dividend payers who abide by their commitments and dividend policies should enter the VanEck Dividend ETF.
Less than 75% of expected earnings are to be paid out in dividends. Large dividends do not guarantee a similar level of payout in the future. Rather, this might harm potential long-term growth and the overall future of the company. A high dividend yield is by no means an indicator of financial health.
The index selects 100 stocks with the highest dividend yields and weights them based on absolute dividends. This is another mechanism to mitigate risk and escape the “yield trap,” as some dividend yields are too good to be true. Large dividend yield can arise, among others, as a consequence of unsustainable dividend policy or a sudden price drop. Both options can indicate financial distress.
Maximum weightings of 40% in any sector and 5% in a single security ensure high diversity across the portfolio. Additionally, geographical diversification acts as a protection layer.
| Holding Name | Shares |
% of Net Assets |
|---|---|---|
| Verizon Communications Inc | 1341928 | 4.93 |
| Chevron Corp | 353877 | 4.59 |
| Hsbc Holdings Plc | 5549255 | 4.43 |
| Pfizer Inc | 1709824 | 4.22 |
| Roche Holding Ag | 135623 | 3.66 |
| International Business Machines Corp | 181985 | 3.28 |
| Bristol-Myers Squibb Co | 564142 | 2.74 |
| Totalenergies Se | 503791 | 2.74 |
| Allianz Se | 86539 | 2.37 |
| Gilead Sciences Inc | 294207 | 2.28 |
| Top 10 Total (%) | 35.23 | |
Because all or a portion of the Fund are being invested in securities denominated in foreign currencies, the Fund’s exposure to foreign currencies and changes in the value of foreign currencies versus the base currency may result in reduced returns for the Fund, and the value of certain foreign currencies may be subject to a high degree of fluctuation.
The prices of the securities in the Fund are subject to the risks associated with investing in the securities market, including general economic conditions and sudden and unpredictable drops in value. An investment in the Fund may lose money.
