World X SuperDividend U.S. ETF: A Excessive-Threat Power Guess (NYSEARCA:DIV)

Excessive-dividend US shares have fallen utterly out of favor in the previous few months. The World X SuperDividend U.S. ETF (NYSEARCA:DIV) is down 8% in its complete return over the previous 12 months, however relative to the growth-heavy S&P 500, DIV is down a whopping 24%. That underperformance has accelerated for the reason that market’s low final October. The SPX and DIV had been about even from early February 2023 to that time, however AI fever and concentrated inventory market appreciation are again en vogue.

I reiterate my maintain ranking on DIV given each the momentum pattern and contemplating the ETF’s present construction. What’s extra, seasonal developments don’t favor a protracted DIV stake proper now.

DIV: Poor Absolute and Relative Efficiency

In line with the issuer, DIV gives traders entry to 50 of the very best dividend-paying equities within the US, probably rising a portfolio’s yield. Distributions are paid month-to-month. The index DIV tracks screens for shares which have low volatility relative to the S&P 500 whereas additionally discovering shares which have excessive yields. Nonetheless, the portfolio is positioned in a dangerous proper now (I’ll element that later within the article).

DIV is a moderate-sized ETF with virtually $600 million in property below administration as of February 5, 2024. What stands out to me proper now could be DIV’s terrible D- share-price momentum grade by In search of Alpha ETF Grading system. With poor efficiency, its moderate expense ratio of 0.45% just isn’t the most affordable fairness revenue fund round. Whereas some traders could also be drawn to the 7.2% trailing 12-month dividend yield, I warning of us to think about the earnings high quality of the ETF’s holdings, which isn’t interesting. As such, risk metrics are on the weak facet, although liquidity is decent contemplating DIV’s quantity profile close to 180,000 shares every day and a 30-day median bid/ask unfold of six foundation factors – that is not tremendous tight, so I encourage traders to make use of restrict orders through the buying and selling day.

Wanting nearer on the allocation, the 1-star, Unfavorable-rated portfolio by Morningstar plots to the far left on the model field, indicating that DIV is an ultra-value ETF. There’s additionally a majority of property within the small and mid-cap area, with simply 23% thought-about massive cap. Whereas DIV’s P/E is low at 12, poor momentum, low earnings high quality, and considerably excessive volatility usually are not optimistic fairness components proper now. Clearly, pessimism is priced in.

DIV: Portfolio & Issue Profiles

Driving the earnings a number of decrease is a really excessive 23% allocation to the cyclical Power sector. Power is simply 3% of the S&P 500, in contrast, so DIV could be very a lot an lively wager on a turnaround amongst oil and gasoline shares. Simply 3% of DIV is invested within the Info Know-how sector.

DIV: Holdings & Dividend Info

Seasonally, In search of Alpha’s new Seasonality software illustrates that now just isn’t a super time to be obese DIV. It has traditionally been a weak performer through the again half of the primary quarter, although April is nearly its greatest month. Persistence is prudent, in my opinion.

DIV: Weak February-March Seasonal Bias

The Technical Take

With a downbeat valuation, closely cyclical portfolio, low earnings high quality, and weak seasonal developments, the technical view just isn’t all that encouraging. Discover within the chart beneath that DIV shares are mired in a steep downtrend off a excessive notched in April 2022. Over that point, the S&P moved decrease, bottomed, after which rallied to contemporary all-time highs. Therefore, relative efficiency with DIV has been downright dreadful. With a long-term 200-day shifting common that’s negatively sloped, the bears seem to nonetheless be in management.

Additionally, check out the RSI momentum oscillator on the prime of the graph – it had been elevated, indicating respectable short-run momentum, however the RSI made a decrease excessive whereas the value tried to rally to a brand new near-term peak earlier this 12 months. I will be watching $15.93 – the Could 2023 low, for potential help together with the multi-year low of $15.32 from October final 12 months. The $17.44 to $17.66 zone is essential resistance and there’s a excessive quantity of quantity by value between $19 and $21 that may very well be problematic at increased ranges.

General, the momentum is unfavourable and the pattern is decrease.

DIV: A Persistent Downtrend, Weak Momentum

The Backside Line

I reiterate my maintain ranking on DIV. Shares have been up simply 1% from my first overview of the fund final 12 months, and I do not see definitive indicators of that pattern altering. Options to think about are the WisdomTree U.S. Whole Dividend Fund ETF (DTD) (see here) and the Vanguard Excessive Dividend Yield Index Fund ETF Shares (VYM) (see here).