GCOW: Global Exposure With Higher Yield Than Peers

seekingalpha2024-09-11

Pacer Global Cash Cows Dividend ETF provides global exposure to dividend-paying companies that have consistently increased their free cash flow and earnings.GCOW has a high starting dividend yield of ...

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quincy27
2024-09-18
quincy27
用股息定投科技股🤡🤡

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This is higher than similar dividend ETF peers.The dividend has also averaged an annual double-digit growth rate over the last five years.The global exposure means that GCOW may underperform its US-based peers. Additionally, GCOW lacks any meaningful tech exposure that can help with price appreciation.   kravcs/iStock via Getty ImagesOverview Dividend focused ETFs can make dividend investing a lot easier by eliminating the need to build individual positions over time. Additionally, ETFs have the power to instantly grant you a diverse range of exposure across sector, geographical region, and reduce overall concentration risk. Pacer Global Cash Cows Dividend ETF (BATS:GCOW) provides exposure to a global mix of dividend paying companies, with an emphasis on businesses that consistently grow their free cash flow and earnings. We can see that GCOW has actually outperformed Vanguard's International High Dividend Yield ETF (VYMI) in total return since inception. Data by YChartsI totally understand the appeal of these ETFs when you consider how difficult it may be to build your own portfolio of funds. Not only does this approach require more upfront capital, but it also increases the risk to single holding volatility. GCOW may be best suited for the investor who wants to build a diversified portfolio of global exposure without the stress of selecting individual holdings. What makes GCOW unique and separates it from peers is the global exposure. While this may help provide a greater sense of diversity, it may simultaneously underperform dividend ETFs with more of a concentrated US-based focus. GCOW has a recent inception dating back to 2016 and has about $2.04B in assets under management. The dividend ETF sports a reasonable expense ratio of 0.60%, and while higher than traditional non-dividend focused ETFs, you get the trade-off of receiving a much higher upfront yield. The current dividend yield sits at approximately 6%. As an added bonus to this high yield, the dividend growth rate over the last several years has remained strong by averaging a double-digit annual growth rate. This makes CGOW extremely appealing for income oriented investors that are looking for a diversified source of growing income. What I like about this particular dividend ETF is that the dividend yield is higher than peers and the fund still captures a sufficient amount of capital appreciation. However, there are some weaknesses to GCOW that I would also like to bring to attention. First, I wanted to start by discussing the strength of the portfolio strategy and why GCOW would make for a solid long-term holding. Portfolio Strategy A part of the portfolio strategy that I find attractive is that GCOW focuses on finding large cap holdings that consistently grow their free cash flow because it helps measure how healthy an underlying company is. This is a quick way to measure the underlying sustainability of a company and the ability to navigate headwinds. A company that also consistently grows their free cash flow levels is a good indication that they can continue to fuel the dividend growth as well. Lastly, companies that have higher free cash flow levels can help add a sense of stability and reduced volatility to the ETF, since these companies tend to be more resilient during market downturns. Remember, the main differentiating factor here is the global exposure that GCOW aims to have. Referencing the most recent fact sheet reveals that the total United States exposure only sits at a fourth of the fund, accounting for 27.91%. This is followed by weight in the United Kingdom and France, accounting for 13.39% and 10.40% respectively. The top holding within is currently Gilead Sciences (GILD) which makes up 2.16% of the fund. The top positions only account for 20.89% of the total weight and there are approximately 106 total holdings within.   GCOW Fact SheetA lot of dividends focused ETFs seem to maintain a majority of weight in sectors that have more predictable streams of income, and GCOW is no exception to this. We can see that Energy is the largest sector weight, making up 20.5% of the fund. This is because energy companies offer what, I think, are essential services for our lives, such as electricity, natural gas, renewables, and even some infrastructure efficiencies. Since this sector of companies offers such essential services, their streams of income are a bit more predictable and steady in nature, which makes for an attractive sector for dividend investors. What is impressive about GCOW's approach is that it lacks any exposure to the financial sector. Similarly, the exposure to real estate is immaterial since it since under a 1% weight. These two sectors typically have higher dividend yields and would help boost the already high yield that GCOW provides. However, the missing exposure to these sectors may actually help with performance since they can be vulnerable to fluctuations in interest rates. Performance Comparison I figured that it would be helpful to compare the performance of GCOW against its global peer and non-global counterparts to give a point of reference for its performance. For these comparisons, I will be matching GCOW up against Schwab's U.S. Dividend Equity ETF (SCHD), Vanguard's High Dividend Yield Index ETF (VYM), and the Vanguard International High Dividend Yield Index (VYMI) so that we can see how the performance lines up against both US and international focused counterparts. I've also included Pacer's very own US focused Cash Cows 100 ETF (COWZ) to see how much different the return is without the global exposure. As expected, GCOW and VYMI have provided the least in total return because of their diverse exposure. COWZ was actually the best performing ETF of the bunch because of its focus on companies that regularly grow their free cash flow. Over the last decade, US markets have continued to outperform global counterparts but the data shows that this outperformance comes in cycles. Therefore, GCOW may be a solid pick to gain global exposure if you think that the strength of the US markets will eventually cool. However, the choice doesn't have to be either or. GCOW could be a nice compliment to an already diverse portfolio of other US focused ETFs. Data by YChartsGCOW also has the benefit of providing the highest dividend yield of 6% out of the batch. This is extremely valuable since it can help income oriented investors capture a larger upfront stream of income with a lower amount of capital invested. For instance, here are the dividend yields of the mentioned peer ETFs.  SCHD: dividend yield of 3.4% VYM: dividend yield of 2.8% VYMI: dividend yield of 4.4% COWZ: dividend yield of 2%.  Therefore, GCOW may be a suitable option for investors that are okay with making the trade-off of higher income in exchange for a lower total return. The first kind of investor that comes to mind would be the retired investor that still wants to main a high level of diversity, obtain a higher income, and experience less US-based market volatility. Vulnerability One of the biggest risks or vulnerability of GCOW is the likelihood of underperformance over long stretches of time. Besides the lack of US focused exposure, GCOW may continue to underperform because of the lack of exposure to the technology sector. Technology only accounted for 2.52% of the total fund and this means that GCOW will likely miss out on a ton of capital appreciation that can be experienced from companies that are more focused on growing their earnings rather than dividend growth. This is a common theme when it comes to dividend focused ETFs, so this isn't necessarily a red flag against the ETF. Tech companies tend to prioritize putting their free cash flow back into their business by growing their portfolio of products or services, funding acquisitions of similar brands, or even funding new research and development. This focus means that there are very few tech companies that have a solid history of dividend growth. Investors should take this into consideration because as long as the tech exposure remains low, the price movement will not be as strong as some other peers. Just to demonstrate, I thought it would be useful to see a price comparison of Fidelity's High Dividend ETF (FDVV) against GCOW. Despite being a high dividend ETF, FDVV maintains a majority of weight to the tech sector that now sits at 23.85%. This allows FDVV to capture a higher portion of price appreciation and helps it outperform GCOW. Data by YChartsIt should also be noted that a vulnerability of GCOW is that the latest tax documents indicate the distributions are mostly classified as ordinary dividends. Ordinary dividends have less favorable tax consequences than the qualified dividends you'd receive from more traditional ETFs. Therefore, GCOW may be best utilized in a tax advantaged account based on your personal situation. Additionally, there may be some vulnerability to changes in the federal funds rate. Since the underlying holdings in GCOW are companies that are typically more cash flow heavy, this may present some underperformance risk during times of rising interest rates. Higher interest rates can decrease operating margins for energy companies that hold floating rate debt on their balance sheet. This can slow the rate of earnings growth and delay different initiatives that can fuel higher cash flows. Additionally, higher rates could slow consumer activity and impact some of the consumer-facing sectors that GCOW is exposed to. Dividend Speaking of the dividend, the yield currently sits at a high 6% rate. What I am most impressed with is the outstanding level of dividend growth that has been achieved. For instance, the dividend has been increased at a CAGR (compound annual growth rate) of 11.55% over the last five-year period. On a smaller time frame of three years, the increases have been even more impressive, as management has been able to achieve a CAGR of 19.81%. However, these averages might be a bit skewed when taking into account the lower dividend payout amounts during 2020, following the market uncertainty driven by the pandemic.   Seeking AlphaRegardless, the level of dividend growth experienced can allow income investors to growth their income over time without much work from their end. To display this, I ran a back test of an original $10,000 investment at the start of 2017. The income received is represented back each of the corresponding blue bars below. This calculation assumes that no additional capital was ever added to your position, besides all dividends received being reinvested back into GCOW to grow your share count.   Portfolio VisualizerIn year 1 of your investment, your total income would have been a modest $331. We can see that this amount slightly dipped and had a bit of a reset in 2020 before eventually rising again. Fast forwarding to 2023 reveals that your annual dividend income would now total $880. This represents a 2.65x growth in your dividend income over a short 6-year time span. Investors would be able to grow this amount more rapidly if they regularly invested capital on a monthly basis and accumulated shares faster. Takeaway  In conclusion, GCOW is a great option if you crave some global exposure that comes with a high yield. I like the fact that GCOW doesn't complicate the strategy by including any unnecessary option strategies. The underlying strategy of focusing on companies that consistently grow their earnings and free cash flow levels has been beneficial. However, GCOW does come with an unfavorable trade-off that results in a lower total return. The global exposure limits the return profile here, and the lack of meaningful tech exposure means that GCOW will likely continue to underperform from a price perspective. However, the dividend growth rate has been very strong and averaging in the double digits. Therefore, GCOW is still a solid pick for income investors that want some diversity away from US markets.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":350763064500528,"gmtCreate":1726661141130,"gmtModify":1726664548213,"author":{"id":"4186212412654842","authorId":"4186212412654842","name":"quincy27","avatar":"https://community-static.tradeup.com/news/default-avatar.jpg","vip":1,"crmLevel":1,"crmLevelSwitch":0,"authorIdStr":"4186212412654842","idStr":"4186212412654842"},"htmlText":"用股息定投科技股🤡🤡","listText":"用股息定投科技股🤡🤡","text":"用股息定投科技股🤡🤡","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/350763064500528","repostId":2466563284,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":1,"commentSize":1,"repostSize":1,"favoriteSize":1,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":false,"deviceId":"web-server-community-laohu8-v3","version":"4.29.4","shortVersion":"4.29.4","platform":"web","vendor":"web","appName":"laohu8","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2466563284"}