US dividend ETFs draw attention amid stock market volatility
Summary
Investors are turning to U.S. dividend-paying stocks as volatility in the Korean stock market prompts interest in regular income, market watchers said Friday. The Dow Jones U.S. Dividend 100 Index selects 100 companies based on their dividend records and financial strength. Mirae Asset offers ETFs tracking the index and funds that combine dividend stocks with covered-call options, which generate option premiums but can limit gains when share prices rise. Its ETF division head Lee Jeong-hwan said investors should focus on a consistent strategy rather than predicting short-term price movements.
Key Facts
- Companies must have paid dividends for at least 10 consecutive years to qualify for the Dow Jones U.S. Dividend 100 Index.
- The index also assesses companies on five-year dividend growth, return on equity and debt relative to cash flow.
- Mirae Asset’s TIGER U.S. Dividend Dow Jones ETF had net assets of 4.56 trillion won, or $3.41 billion, as of Thursday, making it the largest locally listed ETF tracking the index, the asset manager said.
- The TIGER U.S. Dividend Dow Jones Target Daily Covered Call ETF sells options daily, targets annual option premiums of around 10 percent and makes monthly distributions in the middle of each month.
- The TIGER U.S. Dividend Dow Jones Target Covered Call ETF 2 sells a smaller proportion of options and targets annual distributions of around 10 percent, paid at the end of each month.
Mirae Asset Global Investments’ Tiger ETF is advertised on Nasdaq Tower in Times Square, New York City. Courtesy of Mirae Asset Global Investments
Growing volatility in the Korean stock market is prompting investors' attention to U.S. dividend-paying stocks, with some seeking regular income rather than relying solely on stock price gains, market watchers said Friday.
One option is the Dow Jones U.S. Dividend 100 Index, which tracks 100 U.S. companies selected for their dividend records and financial strength. To qualify, companies must have paid dividends for at least 10 consecutive years. They are also assessed on their five-year dividend growth, return on equity and debt relative to cash flow.
The index includes companies from a range of industries, including energy, consumer staples and health care.
In Korea, Mirae Asset Global Investments' TIGER U.S. Dividend Dow Jones exchange-traded fund (ETF) had 4.56 trillion won ($3.41 billion) in net assets as of Thursday, making it the largest locally listed ETF tracking the index, according to the asset manager.
Some asset managers are taking the strategy a step further by combining dividend-paying stocks with covered-call options, a strategy in which an investor sells call options on stocks held in a portfolio in exchange for a premium.
The premiums provide an additional source of income, although the strategy can limit potential gains when stock prices rise.
Mirae Asset offers two ETFs using this approach, with different option-selling strategies and payout schedules.
The TIGER U.S. Dividend Dow Jones Target Daily Covered Call ETF sells options daily and targets annual option premiums of around 10 percent. It makes monthly distributions in the middle of each month.
The TIGER U.S. Dividend Dow Jones Target Covered Call ETF 2 sells a smaller proportion of options, allowing investors to have bigger exposure to gains in the underlying stocks. It targets annual distributions of around 10 percent, made at the end of each month.
Holding both ETFs allows investors to receive distributions twice a month. Investors can also reinvest the payouts to buy additional shares.
"When markets are volatile, investors should focus less on predicting short-term price movements and more on maintaining a consistent investment strategy," said Lee Jeong-hwan, head of the ETF management division at Mirae Asset Global Investments.
"Combining dividend-paying stocks with covered-call options allows investors to seek regular income from both dividends and option premiums."
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