ETFs For Dividend Surprises In 2012
Tue, Dec 4, 9:15 AM ET, by Michael Johnston
Dividend investing has always drawn a large crowd for its stability and high current income focus. For the most part, companies choose to make cash distributions when experiencing excess cash or when they want to skew their debt-to-equity ratios. Recently, however, a new trend has developed in which companies have even more incentive to let go of excess cash. As the fiscal cliff approaches, businesses fear that Congress will not be able to come to a viable solution and that tax rates will go back to pre-Bush tax cut levels. This incentive to give shareholders a special dividend before the year’s end may be more appealing to firms than paying the higher tax rates themselves [for more financial ETF news and analysis subscribe to our free newsletter].
Below are firms that Goldman Sachs expect will pay out a special dividend before new taxes take effect:
Federated Investors Inc (FII)
Goldman Sachs believes this asset management company may pay a special dividend before the year end that will yield 4.5%. Currently there are two ETFs that offer exposure to FII:
- SPDR S&P Capital Markets ETF (KCE): This ETF allocates 3.29% to Federated Investors and with an expense ratio of 0.35%, it’ one of the cheapest financial equity ETFs out there.
- S&P Equal Weight Financial ETF (RYF): As an equally-weighted fund, this ETF allocates 1.35% to Federated Investors and all of the other companies it holds, including Moody’s and Citigroup [see also The Top 10 Cheapest And Most Expensive ETFs].
Franklin Resources Inc. (BEN)
Goldman Sachs also believes this asset management company could pay a special dividend in the near future that will yield 0.9%. Currently there are two ETFs that offer exposure to BEN, one of which also provides exposure to Federated Investors:
- KBW Capital Markets Portfolio (KBWC): Allocating 8.44% to Franklin Resources makes it the second-largest holding in the portfolio, only behind State Street Corp.
- SPDR S&P Capital Markets ETF (KCE): This ETF allocates 3.08% to BEN, less than it does for Federated and other financial institutions.
General Dynamics (GD)
After a closer look, Goldman Sachs believes this aerospace and defense company may pay a special dividend yielding 3.1%. Currently there are four ETFs that offer exposure to GD:
- Dow Jones US Aerospace & Defense Index Fund (ITA): By allocating 5.89% to GD, this industrial equities ETF offers by far the most exposure to the firm.
- Aerospace & Defense (PPA): While PPA mostly holds industrial firms like GD, which makes up 5.05% of the fund’s total assets, there is also a number of minority holdings in technology and consumer cyclical firms.
- SPDR S&P Aerospace & Defense ETF (XAR): GD is one of XAR’s largest holding, allocating 4.58% to the company out of its 36 holdings.
- Dynamic Industrials (PRN): Comprising of companies evaluated by fundamental growth, stock valuation, investment timeliness and risk factors, GD makes up 2.43% of the fund.
Las Vegas Sands Corp (LVS)
Goldman Sachs expects that this Vegas gaming corporation will pay out a 2.1% special dividend before 2013. Currently there are four ETFs that offer exposure to LVS:
- Market Vectors Gaming ETF (BJK): This gaming ETF offers exposure to companies like Wynn Resorts, Sands China and MGM Resorts, but the heaviest allocation is in Vegas Sands at 8.26%.
- Large-Cap Growth Equity Strategy Fund (RWG): With a large range of focuses from technology, consumer cyclical and healthcare, LVS is one of the largest of the 53 holdings with its 3.88% weighting.
- Wilshire 4500 Completion ETF (WXSP): By removing the 500 stocks on the S&P from the Wilshire 5000 Index, investors gain more exposure to LVS, which at 0.95% is again the top holding.
- Extended Market ETF (VXF): This domestic equities fund is set up much like WXSP, with a broad overview of the entire market, but with 3,040 holdings, its top allocation, LVS, only makes up 0.64% of the fund.
MasterCard Incorporated Class A (MA)
Goldman Sachs expects that this credit card giant will pay out a comparatively smaller 0.2% special dividend before the year is through. Currently there are three ETFs that offer exposure to MA:
- Dow Jones US Financial Services Index Fund (IYG): This 12-year-old fund offers exposure to game changers like Wells Fargo, JPMorgan Chase and Visa, but with 3.49% allocation, MasterCard is in the top ten of these 112 holdings.
- Dow Jones US Financial Sector Index Fund (IYF): Another veteran iShares financial fund, MasterCard make up 1.95% of this fund.
- S&P Equal Weight Technology ETF (RYT): An un-managed and equally weighted fund, RYT accounts for 1.61% of the portfolio, which is heavily biased towards technology and industrial stocks.
Stryker Corporation (SYK)
This technical medical corporation is expected to pay out a 1.5% special dividend in the next month. Currently there are two ETFs that offer exposure to SYK:
- Dow Jones US Medical Devices Index Fund (IHI): This high-flying ETF has enjoyed the biotech market upturn with a current year-to-date return of 16%. It allocates a whopping 5.91% to Stryker Corp.
- RAFI Fundamentals Pure Mid Growth Portfolio (PXMG): Comprised of mid-growth U.S. companies ranging from REITs, industrial stocks and healthcare equities, SYK’s 1.79% allocation makes it one of the largest holdings in the fund.
Western Refinancing Inc (WNR)
Goldman Sachs believes this integrated oil and refining company may pay a special dividend before the year-end that will yield 0.9%. Currently there is one ETF that offers exposure to WNR:
- SmallCap Earnings Fund (EES): This fundamentally weighted ETF allocates 1.09% to WNR and other top holdings like Cirrus Logic, Veeco Instruments and Revlon, which are only three of the over 900 firms included in the fund.
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Disclosure: No positions at time of writing.
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SDI Glossary: "Dividend" Definition
SDI Glossary: "Earnings" Definition
SDI Glossary: "Equity" Definition
SDI Glossary: "ETFs" Definition
SDI Glossary: "iShares" Definition
SDI Glossary: "Sector" Definition
SDI Glossary: "TA" Definition
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