Published Tue, 10 Dec 2013 10:00
When it comes time to getting your next ETF, consider choosing an industrial based fund for dividend dependability and proven productive performance. Unlike some of the other REITs and funds available, these ETFs are primarily derived from industrial-focused stocks. While other areas of the exchange may lag, the production and industrial performance of the economy, in a dividend-based fund such as the Industrial Select Sector SPDR (NYSE: XLI) and the First Trust AlphaDEX Industrials/Producers (NYSE: FXR) offer industrial options for the investor who wants positive dividend yields.
XLI is managed by State Street Bank and Trust, and is administered by SSgA Funds Management, with the latest dividend being 0.22 USD. FXR is managed by First Trust Advisors LP with the most recent dividend being 0.04 USD. Given the trending of both of these ETFs over the last year as indicated by the following chart, you can see that the dividend yield is just
a byproduct of the exceptional YTD growth on these funds, indicating that the industrials sector funds have been outperforming other sectors. FXR has shown more rapid growth than XLI in the last year as indicated by the blue line above. With a great looking chart showing quarterly growth at a manageable pace, the industrial ETFs seem to have all of their bases covered. Many investors are using the re-investment option of their dividends to buy new stock and are seeing positive gains as a result.
These funds focus on the industrial stocks with FXR focusing on the StrataQuant Industrials Index, and XLI targeting the Industrial Select Sector Index. Given its track record, and the general momentum illustrated by the performance in the industrial sector, investors are optimistic that these growth areas will continue. With more and more integration and acquisitions in the industrials, it is important to choose picks that are competitive with each other so you are not getting a company that is eating its own profits.
XLI, at press time, had an average volume of just below 9,000,000/day, with a total of 170,926,000 outstanding, making it one of the most actively traded ETFs on the market at the moment. FXR has an average daily volume of 333,110, with a total outstanding volume of 20,650,000 shares.
The price to dividend yield is higher on XLI (50.34: 0.22) than on FXR (27.32: 0.04), but the initial price to get in on the fund is higher by almost double. FXR is a much newer fund, being introduced in 2007, so it does not have the robust history that XLI has since it was introduced in 1997, a whole decade earlier. Doing a side by side 5-years comparison, both funds have shown positive growth, with XLI having 149.54% increase and FXR having 195.38% increase.
Ii is to be expected that the dividends on these funds will be readjusted to reflect a greater yield, since the inception and growth of these funds and their sub-classes have been phenomenal over the last year (XLI @ 37.91% increase for the year and FXR @ 44.21% for the year). XLI is currently classed at a 1.74% dividend yield or 0.22 USD, more than double the payout on FXR which is only classed at 0.66% and 0.04 USD.
Most companies wait to adjust their dividend payouts until the annual reporting cycles have been finalized, and hopefully by Q2 in 2014 these funds will be pushing dividends into the higher numbers. In the meantime, the question is begged about whether the growth of these funds and the industrial sector can maintain an outperform rating. History is often a good indicator of trends and events to come for everything except the stock market, but industry is also concentric to world growth, so getting in on a fund now as opposed to 5 years from now may have some nice dividends down the road.