Disclaimer: No investment advice or recommendation, this article is for information purposes only. Before you decide on an ETF, take a closer look at it in terms of positions

take a closer look at positions, sampling, regions, etc. I can't describe all of this

I can't describe everything, as it would go beyond the scope of this article

Part 1 (definition, categories & Z-score and quality factor): https://getqu.in/RCSY4a/

Part 2 (Value ETF): https://getqu.in/Nfnhqb/

Part 3 (Low Volatility ETF): https://getqu.in/Ub7KpG/

Part 4 (Momentum ETF): https://getqu.in/CNMgGw/

Part 5 (Small and Growth ETF): https://getqu.in/0NoqmW/

What are dividend ETFs?

Abbreviated what dividends are, since everyone here probably knows this: distributions by a company to its shareholders, the amount is usually voted on at the annual general meeting and is usually paid out of profits, but does not have to be (if it is paid out of the substance, this is often counted as a bad indicator).

Dividend ETFs are therefore primarily ETFs that distribute the dividends paid by companies to the ETF holders; they are also referred to as distributing ETFs (Dist.). In contrast, an accumulating (Acc.) ETF uses the dividends to buy more shares, i.e. it reinvests.

Because the dividend ETF distributes money, I get cash flows back from my investments, usually on a quarterly basis. These ETFs are celebrated - especially on social media - as a form of passive income and have their advantages but also disadvantages, which we will examine in more detail below.

Dividends as a value premium (CAPM /French Fama model)

Short recap (in more detail in part 5): French Fama's 3 factor model raises beta (volatility), size- and value-premium as factors to determine the expected return of an investment. Dividends are not explicitly mentioned as a factor, but they are indirectly included in the value and beta factors, as a company must first be able to afford to pay dividends.

must first afford to pay dividends. Growth and small-cap companies

often do not yet pay dividends, as the revenue generated is used for more growth

growth or the balance sheets are not yet as sustainable. Dividend payers often have a stronger balance sheet, which makes them less volatile to changes in interest rates, for example (although this reduces the expected return according to the CAPM). Exceptions are high dividend payers, which are often riskier and reward investors with a high dividend for holding the share.

The fact that dividends also count as a quality factor can be clearly seen in the dividend aristocrats. These are companies that have been paying dividends continuously for 25 years and increase them annually. This makes them particularly attractive, which is why they can also be invested in via individual products such as the $SPYD (-0,29 %) are investable.

Dividends are also included as a valuation factor in the Quality ETF as a positive valuation criterion (see also Index Methodology Part 1)

Historically, several studies for the US market show an outperformance of dividend stocks, especially even high dividend payers:

https://www.hartfordfunds.com/insights/market-perspectives/strategic-beta-etfs/what-drives-dividend-stock-performance.html

https://www.globalxetfs.com/content/files/High-Dividend-Stocks-In-Rising-Interest-Rate-Environments.pdf

In the recent past, however

However, high-dividend stocks have underperformed in the recent past, with the ACWI High

Dividend has significantly underperformed the MSCI ACWI over the last 10 years (- 100 %).

Classes of dividend ETF?

In my view, dividend ETFs can be roughly divided into 3 categories:

- Dividend as a windfall: The focus of the ETF is not on dividends, but some companies are included in the index that pay dividends and these are then distributed to the holder. A classic example is the dividend-paying $VWRL.

- Quality dividend: The focus is on achieving dividends, but these are accompanied by quality factors such as dividend aristocrats or quality dividend ETFs

- High Dividend: The highest dividend yields are targeted here, whereby quality factors may play less of a role.

Why high dividend yields can be a problem

Unfortunately, I have often overheard conversations that sound like: "VW is so cheap, you get a 10% dividend yield, you can't go wrong". But that brings us to the problem of high dividend yields, because these are often a signal of structural weakness in the company and/or a sharp fall in the share price. If the dividend yield remains at this level, this could seriously jeopardize the company's long-term financial strength. If the dividend yield remains

and is even reduced, the original investment case is invalidated.

So even if the unsystemic individual risk in ETFs often "diversifies away", it is important to take another look at the largest positions and check whether this is not a structurally weakening company.

Advantages of dividends

In addition to the potential value premium mentioned above, dividends fulfill a different purpose at an individual level, depending on the stage of life: for most people reading this, this purpose is likely to be psychological, as they are not dependent on the cash flow from dividends.

cash flow from dividends. The dividends are then a nice motivational effect and

offer the "peace of mind" of a steady income even in the event of market setbacks

and therefore less worry about declining book profits.

Once you have reached an advanced age, the dividend offers a high comfort factor. This means that there is often no need for rebalancing or a withdrawal plan, as would be the case with accumulating ETFs. The dividends are then used as additional income for retirement; of course, withdrawals can also be made, but not to the same extent as would be necessary with accumulating ETFs.

would be necessary.

Disadvantages of dividends

Taxes! Because payments are distributed to the holder, capital gains tax, solidarity surcharge (26.375% in total) and, if applicable, church tax are also due. This tax is first deducted before I can reinvest the dividends, and reinvesting the dividends costs extra (even with neobrokers via the spread between the ask and bid price). Dividends therefore have a detrimental effect on the compound interest effect of the ETF's profits.

Although accumulating ETFs have been brought somewhat into line with dividend ETFs in terms of taxation with the advance lump sum taxation, they still offer the advantage that the tax burden is always lower than for dividend payers (if the dividend ETF has distributed less than the advance lump sum, an advance lump sum is also charged).

Another negative aspect that goes hand in hand with the above is market timing. Often not every small dividend is reinvested directly, but accumulated until, for example, EUR 1,000 is reached in the clearing account. If the market has then run away, you wait for a setback and may miss the entry or at least lose the lost performance where the money was sitting in the settlement account without earning interest.

account without interest. There is also more work involved in the savings phase due to the necessary reinvestments.

Tax comparison high-dividend vs accumulating (example 2024)

Assumption that the tax-free amount has already been exhausted

Investment amount: 100,000

ETF1: Vanguard FTSE ACWI High Dividend ($VHYL (+0,11 %))

ETF2: iShares MSCI ACWI ETF ($ISAC (+0,26 %) )

Tax Burden High Dividend:

Price at the beginning of the year: EUR 57

Shares: 100,000 / 57 = 1,754.39

Dividend per share: EUR 1.94

Absolute dividends: EUR 3,403.51

Partial exemption ratio: 30%

Tax (26.375 %) = EUR 628.38

Tax burden accumulating ACWI

Fund value at the beginning of the year: EUR 100,000

Prime rate 2023 (for 2024): 2.55%

Base yield (70%): EUR 1,785

Partial exemption rate: 30%

Up-front lump sum: EUR 1,249.50

Tax (26.375%) = EUR 329.56

There is a tax disadvantage of around EUR 300, which is thus withdrawn from compound interest.

For whom are dividend ETFs worthwhile?

In summary, the disadvantages of strongly dividend-oriented investing outweigh the advantages for me. Of course, there are many shades of gray between focusing on high dividends and reinvesting. Dividends as an addition - especially as they often come with a premium - make perfect sense, but the explicit focus on high dividends can be dangerous and has tax disadvantages.

Dividend ETFs are therefore primarily for investors who want to generate income regardless of the current market phase and appreciate the stability of the cash flow. If the dividends also ensure that you can sleep better at night when the market fluctuates and are not tempted to panic sell, then the small tax disadvantage is no reason not to invest.

the small tax disadvantage is no reason not to invest in dividends. Also

It also has its charm to have a less intensive withdrawal phase in old age.

withdrawal phase. So if you are emotionally affected by market fluctuations, appreciate regular income and are convinced of the dividend premium (as part of the value premium), then dividend ETFs are just right for you.

👉Dividends-ETFs:

Performance comparisons incl. dividends

$VHYL (+0,11 %) (World | TER 0, % | Tracking Difference -0.04 % | DivRendite 3 %| EUR 5 bn invested volume | 3Y underperformance vs. MSCI World - 5 %pt | 5Y underperformance vs. ACWI - 30 %pt | 10Y underperformance vs. ACWI -100%pt)

• Index methodology: Based on the FTSE All-World Index, which includes large and mid-cap companies from developed and emerging markets worldwide. REITs are excluded. Companies are sorted according to the expected 12-month dividend yield and the stocks with the highest dividend yield are selected. The aim is to achieve around 50% of the market capitalization of the original index and then to weight these companies according to their size in the index.

$TDIV (+0,29 %) (World | TER 0.38 % | TD 0.47 % | Div yield 4.3 % | EUR 1.2 bn invested | 3Y outperformance vs. ACWI + 18 %pt | 5Y underperformance vs. ACWI - 7 %pt | 8Y underperformance vs. ACWI - 38%pt)

• Index methodology: Screening for consistent dividend payers with ESG relevance. Weighting by dividend max. 5% per share and max. 40% per sector. Selection of 100 stocks with the highest dividend yield. Semi-annual rebalancing

$SPYD (-0,29 %) (US | TER 0.35 % | TD -0.07 % | Dividend yield 1.5 % | 3.5 bn invested | 3Y underperformance vs. S&P 500 -23 %pt | 5Y underperformance vs. S&P 500 - 63 %pt. | 10Y underperformance vs. S&P 500 - 283%pt.)

• Index methodology: Includes components of the S&P Composite 1500, then selects for companies with the highest dividend yield whose dividends have been increased for the last 20 consecutive years. Furthermore, minimum requirements for market capitalization and liquidity of the share must be met. Maximum weighting per share 4%.

$SPYW (-0,12 %) (Europe | TER 0.30 % | TD -0.35 % | DivRendite 3.7 % | 3Y underperformance vs.

Eurostoxx 600 - 1 %pt. | 5Y underperformance vs. Eurostoxx 600 - 24 %pt | 10Y underperformance vs. Eurostoxx 600 - 28 %pt.)

• Index methodology: Based on the S&P Europe Broad Market Index, companies must have increased or maintained stable dividends for 10 consecutive years, selection of the 40 companies with the highest dividend yield and weighting accordingly. Max. 5 % per share, 30 % per country/sector.

Conclusion - what remains: A balanced strategy with dividends as an admixture can make sense, whereby the focus should be on quality dividends rather than high payouts.

#smartbeta
#etf
#dividende

Spring is in full swing, my tomato plants are flowering and soon there will be delicious "yields". Time for a look back at May.

➡️ Shares

With an incredible +148% $AVGO (+0,31 %) in my portfolio. The model student is not only the performance winner, but also the heavyweight in terms of portfolio volume among the individual shares. The share has long since cracked the €1,300 mark in terms of volume and is continuing its journey. I am not letting this horse out of the stable á la Beate Sander. I could well imagine that a split is imminent here, after the $NVDA (+2,01 %) recently completed. Otherwise there is hardly any news, the performance of the good stocks continues to rise and the negative performance of my flop stocks is steadily improving. Thus $DHR (+0,77 %) only at -24% instead of -30%. That's how it has to be. You can just feel a moderate wave lifting the boats. In favor of the ETFs, I will leave the comments on the stocks short this time.

➡️ ETFs

With this review, I'm going to take a closer look at my ETFs. I originally started with a 50/30/20 strategy on the MSCI World, EM and Europe, which I later supplemented with an Immo and Small Cap ETF. So the MSCI World with the MSCI EM ETF formed the core portfolio and the other ETFs were small satellites around it.

As these were almost all accumulators at the time and I quickly realized that I could build up additional income by saving in distributing ETFs, I quickly said goodbye to the accumulators. I also moved my ETF custody account to a neobroker. This is where I now manage my large ETF portfolio, which will form the absolute basis of my retirement provision. So if the dividends are not enough, or if I have to sell the portfolio and a sale is unavoidable, then the shares will be sold off piece by piece first and the ETFs will only be touched later. This portfolio contains the $VWRL (+0,18 %) , $VHYL (+0,11 %) , $VUSA (+0,32 %) , $ISPA (+0,06 %) , $IMEU (-0,85 %) and $IWDP (+0,92 %) . The current portfolio content consisting of an All World ETF and geographic and/or thematic shear points around it does further justice to the core-satellite concept. All these ETFs are saved monthly and all pay out dividends.

My first old portfolio naturally still contains residual holdings. These have been converted into distributing ones where appropriate and are shown in detail in the $EXXT (+0,04 %) , $ZPRG (+0,23 %) , $ISPA (+0,06 %) , $SPYW (-0,12 %) , $SPYD (-0,29 %) . The portfolio volume is in the four-digit range. The $ZPRG (+0,23 %) is saved. Further cashback flows into one-off savings plans, which replenish one of the other positions. The core task of this portfolio is to generate cash flow, so share price growth is less important to me. I am currently reinvesting the distributions. I could also imagine diverting this as a boost to my nest egg, as a kind of "inflation compensation". It's good that you can set up savings plans and standing orders at the click of a mouse these days, which gives me the flexibility that I base this portfolio on.

My second old custody account used to be the main custody account for the shares, which have long since been with a neobroker and are saved there. I bought two new ETFs here in May, which I also save a small amount of money in each month. They are the $FGEQ (+0,06 %) and $TDIV (+0,29 %) . Here I have the same idea as above. Simply generate cash flow that is reinvested but can be used in other ways if necessary, e.g. to contribute to my fixed cost lump sum.

I can certainly simplify my ETF portfolios considerably and close the old portfolios completely. But I don't want to and won't do that. It's a great feeling when money rains down from the sky every month on all banks/brokers. I want to retain the flexibility of multiple brokers so that I can react quickly if a broker cancels my contract (for whatever reason). In addition, operating this infrastructure does not cost me any fees.

➡️ Distributions

I received 21 distributions on 10 payout days in May. This time, the German values also fell $SAP (-0,03 %) and $DHL (+0,13 %) to book. May was strong in terms of dividends and was almost on a par with June last year. With the past month, I am already well above the dividend that I expect on average according to my planning.

Outlook: According to my forecast thanks to GQ, June 2024 will eclipse everything by far. Depending on the distributions in the fall, I may be able to increase the size of my planned dividend reinvestment. That puts me in a good mood!

➡️ Cashback

I found a few returnable bottles and cans along the way while hiking and on the way home. Especially on men's day. Without me actively looking for them. The deposit was taken away these days. I may invest the proceeds once again in $SOL (+2,02 %) invest it again.

I haven't redeemed any Payback points this month, but I have been busy collecting them.

➡️ P2P loans

With the exception of Bondora Go&Grow, the interest and redemption stream has now dried up on all platforms. EstateGuru also abruptly introduced a new price list at the end of the month, to the detriment of us investors of course. I didn't like this and it only confirms my intention to exit this asset class. There will be news here next month.

➡️ Crypto

It's a case of wait and see. There is no other way to describe the situation. A look at the $BTC (-0,05 %) -price shows the sideways movement and resistance at USD 71K. We must remain patient.

➡️ Outlook

The tax refund is on its way and will be invested. Part of it will even be donated. You'll find out what next month. I might also introduce you to a great project that is definitely worth donating to.

My parents are close to retirement (2 years) and have a larger amount free to invest about 200 k€.

They would like to improve their small pension through dividends / interest.

My approach would be:

40 % ETF:

70 % $SPYD (-0,29 %)

20 % $SPYW (-0,12 %)

10 % $IAPD (-0,31 %)

40 % Individual shares (dividend growth)

$SHW (+0,3 %)

$XOM (-0,4 %)

$CAH (+0,49 %)

$AD (-0,59 %)

a.o.

20 % Security:

10 % Cash

10 % Call money

Steadily increasing dividends and not too much risk are important.

I look forward to your suggestions 🙌😉

Hi guys, what do you think about dividend ETF's such as the $SPYW (-0,12 %) ?

I have a relatively high proportion of NA in my portfolio and would like to polish up the proportion of Europe with dividend stocks. I could of course also buy individual stocks but then I would have to take care of the selection myself.

Yes I know, single stocks can be more exciting than an ETF but we all know that on average they do not perform badly.

Do you have experience with this question?

Why does the region say "Other" and not Europe?