WDIV - WDIV Vs. FGD: Which Is The Best Global Dividend Growth ETF?

2023-09-01 17:52:08 ET

Summary

• SPDR® S&P Global Dividend ETF invests in international dividend aristocrats.
• First Trust Dow Jones Global Select Dividend Index Fund ETF has many common characteristics and may be considered a close competitor.
• I compare these exchange-traded funds, WDIV and FGD, regarding a number of criteria.
• None of them looks really attractive regarding historical return and dividend growth.

This article series aims at evaluating ETFs (exchange-traded funds) regarding past performance and portfolio metrics. Reviews with updated data are posted when necessary.

WDIV strategy and portfolio

SPDR® S&P Global Dividend ETF ( WDIV ) started investing operations on 5/29/2013 and tracks the S&P Global Dividend Aristocrats Index. It has a portfolio of 90 stocks (plus positions in various currencies and futures), a distribution yield of 4.94% and a total expense ratio of 0.40%. Distributions are paid quarterly.

As described by S&P Dow Jones Indices, eligible companies must have:

• A float-adjusted market capitalization of at least $1 billion.
• An average daily volume of at least $5 million.
• A Positive EPS.
• Increased or stable dividends every year in the last 10 years.
• An IAD yield inferior or equal to 10%.
• New components must have a payout ratio below 100%.

The 100 stocks passing these rules with the highest IAD yield are included in the index at every annual reconstitution, with a maximum of 20 stocks in each country and 35 stocks in each GICS sector. They are weighted based on IAD yield with a maximum of 3% for each constituent and 25% in each country and each sector. The index has a semi-annual review of weight limits and a monthly review of constituent eligibility. Excluded stocks are not replaced until the next reconstitution.

Hereafter I will compare WDIV with a close competitor: First Trust Dow Jones Global Select Dividend Index Fund ETF ( FGD ), reviewed here . I consider them close competitors because they have many common characteristics:

• portfolio of international dividend paying companies,
• country diversification,
• include the U.S.,
• include small caps,
• criteria of dividend growth,
• no currency hedge.

The dividend growth condition of FGD is looser: the current dividend per share must be above the 5-year average. However, it is stricter on payout ratio: the 5-year average must be below 60% for the U.S. and Europe, and 80% for other countries.

Both funds pay quarterly distributions. The next table compares yields, fees, assets ("AUM") and average daily volumes.

WDIV shows lower liquidity: it is not an issue for long-term investors, but it is less adequate for swing trading or tactical allocation.

WDIV and FGD are mostly invested in large and mid-cap companies, and they have similar size profiles. FGD is a bit heavier in small caps.

Canada, the U.S. and Japan are the heaviest countries in WDIV, with 16% to 20% of asset value in each of them. Other countries are below 9%. FGD has the same top 2 countries, but it is lighter in Japan and replaces it with South Korea for the 3rd rank. China is part of WDIV and ignored by FGD.

Direct exposure to geopolitical and regulatory risks related to China must be taken into account by investors in WDIV: China and Hong Kong weigh almost 14% in aggregate.

Financials are the heaviest sector in both funds: it is massively overweight in FGD (35%), and at a reasonable allocation in WDIV (25%). WDIV is better diversified across sectors than FGD, which ignores totally technology, healthcare, and almost real estate.

The top 10 holdings, listed below, represent about 17% of asset value for both funds. No holding weighs more than 2.5%, so risks related to individual companies are low.

WDIV looks more expensive than FGD regarding the usual valuation metrics, as reported in the next table. However, the weight of financials may skew FGD metrics. This sector has, on average, materially lower and less reliable ratios.

Performance

The next chart compares total returns since June 2013. The difference is insignificant.

Dividends are excluded below (capital return only):

WDIV share price has held a bit better over time, and it is close to break-even from June 2013 to date. However, cumulative inflation has been about 31% in the same time (based on CPI). For shareholders, it means a significant decay of capital in inflation-adjusted value.

The annual sum of distributions has been close to flat for both funds since 2014.

Once again, these numbers must be considered in the context of a 25%+ cumulative inflation, so capital and income stream have shrunk after inflation adjustment for both funds. A part of the decay is due to local currencies. As geographical allocations have changed over time, it would be too complicated to calculate the impact of forex rates variations. For a rough evaluation, the dollar index has gained about 23% between 2013 and 2022. It doesn't change the picture for U.S. shareholders, but it makes it better for non-dollar based investors. Currency risk may play in favor or against global equity funds in the future.

Takeaway

SPDR S&P Global Dividend ETF invests in international dividend aristocrats. The next table recapitulates this comparison with First Trust Dow Jones Global Select Dividend Index ETF.

If we count one point per line, FGD comes first by a short margin. However, you may want to give different weights to these criteria and make your own score. Anyway, none of these funds looks really attractive regarding price and distribution history.

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