S&P Dow Jones licenses Pan Asia Dividend Aristocrats index to SPDR ETFs

Apr 26th, 2013 | By | Category: Equities

As the search for yield increasingly goes international, S&P Dow Jones Indices has announced that its S&P Pan Asia Dividend Aristocrats Index has been licensed to SSgA’s SPDR ETFs division for the launch of an exchange-traded fund (ETF) based on the index.

S&P Dow Jones licenses Pan Asia Dividend Aristocrats index to SPDR ETFs

The S&P Pan Asia Dividend Aristocrats Index includes constituents from both developed markets such as Japan and Australia and emerging markets like Malaysia (pictured).

The index is designed to measure the performance of the highest dividend yielding companies within the S&P Pan Asia Broad Market Index (BMI) that have followed a managed-dividends policy of increasing dividends for at least seven consecutive years.

The index is part of the popular ‘Dividend Aristocrats’ family, which includes, among others, the S&P High Yield Dividend Aristocrats, underlying index to the $11.5 billion NYSE Arca-listed SPDR S&P Dividend ETF (SDY) and the $1.1 billion SPDR S&P US Dividend Aristocrats UCITS ETF (SPYD) listed across Europe.

The announcement comes just weeks after the US-headquartered index provider revealed that its global aristocrats index – the S&P Global Dividend Aristocrats Index – had also been licensed to SSgA to underlie an ETF. With the eventual roll out of these ETFs, which will sit alongside the existing US, UK and European products, the only obvious gap remaining in the suite (barring additional country-specific funds) appears to be emerging markets (EM). An EM Dividend Aristocrats Index is probably just a matter of time.

The indices, and thus the funds linked to them, have proved popular thanks to their underlying strategy, which cleverly balances the quest for immediate income with the need to ensure dividend sustainability and growth. The strategy aims to achieve this balance through a methodology that incorporates a range of criteria on dividend payout ratio, maximum dividend yield and dividend growth, to exclude companies whose future dividend payout may be considered potentially less sustainable.

First, however, to be eligible for inclusion a stock must initially be a member of the S&P Pan Asia BMI and then it must also pass a series of screens relating to tradability and liquidity. These include the requirement that stocks have a float-adjusted market capitalisation of at least $1 billion and an average daily value traded of at least $3 million for the three-months prior.

To ensure dividend growth and sustainability, stocks must have increased dividends every year for at least seven consecutive years; must not exceed a 100% dividend payout ratio or have a non-negative dividend payout ratio; and must have a maximum 10% indicated dividend yield as of the rebalancing reference date. These measures help to exclude companies whose dividends may not be sustainable over time, as well as companies whose stock prices have deteriorated rapidly.

The stocks with the highest indicated dividend yield that pass the eligibility criteria are selected to form the index (up to a maximum of 100). It currently has 46 constituents. Constituents are then weighted by yield, subject to weight caps of 5% per constituent and 30% per country and GICS sector.

Consequently, the index is well diversified with representation from Japan (20 members), Australia (8), China (6), Hong Kong (4), Taiwan (2), Malaysia (2), South Korea (2), Singapore (1) and India (1). Major psotions include HTC, Takeda Pharmaceutical, Quanta Computer, NTT DoCoMo, Tambang Batubara Bukit Asam, Eisai, Woolworths, Coca-cola Amatil, Sonic Healthcare and Simplo Technology. The largest sectors are Industrials, Consumer Staples, Health Care, Consumer Discretionary and Information Technology.

It’s not known exactly when the SPDR ETF will go live, although it’s likely to be some time in the not-too-distant future. However, for investors seeking immediate access to high-yielding Asian stocks, there are already a few options out there. For example, UK and European investors could consider the iShares DJ Asia/Pacific Select Dividend 30 ETF (IAPD), listed on the London Stock Exchange, Borsa Italiana, Deutsche Börse, NYSE Euronext Amsterdam, NYSE Euronext Paris and SIX Swiss Exchange, or the db X-trackers MSCI AC Asia Ex Japan High Dividend Yield Index UCITS ETF (XAHG) listed on the London Stock Exchange. US-based investors could take a look at the iShares Asia/Pacific Dividend ETF (DVYA) listed on the NYSE Arca.

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