Advisors Asset Management has unveiled the AAM S&P Developed Markets High Dividend Value ETF (DMDV US).
The fund provides exposure to international stocks that are thought to have high and sustainable dividend yields.
Listed on NYSE Arca, DMDV targets international developed market stocks with attractive valuations, high dividend yields, and sustainable dividend distributions.
The fund is linked to the S&P Developed Markets Ex-US Dividend and Free Cash Flow Yield Index which focuses on two key valuation indicators to identify sustainable dividend-paying stocks offering fundamental value: dividend yield and free cash flow yield.
A high dividend yield may signal a company’s willingness to return capital to its shareholders and may provide a healthy source of return over time. Investing exclusively by high dividend yields, however, poses the risk of exposure to value traps – companies whose businesses are unable to sustain high dividend yields and subsequently reduce or scrap their payments.
High levels of free cash flow – surplus cash after outflows to support operations and maintain capital assets – on the other hand, means a healthy operating condition and strong balance sheet which may help DMDV avoid value traps among high dividend stocks.
Lance McGray, Managing Director, Head of ETF Product at Advisors Asset Management, commented, “Reaching for the highest-yielding stocks is not always the best course of action. Dividend sustainability may be just as important as the actual dividend yield itself. In our opinion, free cash flow yield is an ideal indicator of dividend sustainability, and when coupled with dividend yield in the selection process, the result can be powerful.”
The starting universe for the index is all mid- and large-cap stocks from developed market countries excluding the US and South Korea. Constituents must have a float-adjusted market capitalization greater than $1 billion and a median daily traded value of at least $5 million to remain in the index.
Each security’s dividend yield and free cash flow yield is calculated and scored relative to other firm’s in the selection universe. A composite score for each stock is calculated based on the product of the dividend yield and free-cash-flow scores.
The top five scoring securities are selected from each of the eleven sectors using Standard & Poor’s Global Industry Classification Standard (GICS) for a total of 55 constituents. The index is equally weighted semi-annually with a country cap of 25%.
The largest country exposure is to the United Kingdom (21.4%), followed by Japan (12.7%), Hong Kong (8.8%), Germany (7.6%), Singapore (7.5%), France (7.5%), and Australia (7.3%).
The fund comes with an expense ratio of 0.39% and distributes income to investors on a monthly basis.
The dividend yield on the ETF is currently 5.7%.
Advisors’ high dividend value ETF suite also includes the AAM S&P 500 High Dividend Value ETF (SPDV US) and the AAM S&P Emerging Markets High Dividend Value ETF (EEMD US). SPDV comes with an expense ratio of 0.29%, while EEMD costs 0.49%.
“We are excited to launch our third ETF within our high dividend value line-up,” added McGray. “With the addition of DMDV, we now offer investors our innovative high dividend value strategy across domestic, emerging and international developed markets.”
Investors who are in favour of the free-cash-flow approach may also wish to consider ETFs offered by TrimTabs Asset Management. The firm offers two actively managed ETFs which target either US or developed market (ex-US) stocks with a focus on firms that are generating free cash flow, reducing their share count without the use of leverage, and maintaining healthy balance sheets. The flagship TrimTabs All Cap US Free-Cash-Flow ETF (TTAC US) surpassed $100 million in AUM earlier this year.