PEY ?

[charlie]

I would like to hear some discussion on PEY (PowerShares High Yield
Dividend Achievers Fund) vs. DVY (iShares Dow Jones Select Dividend)
vs Vanguard's Windsor II in a taxable account.

I am considering switching from Wellesley Income to one of the
above funds plus a 5 year CD ladder with PenFed. Tax efficiency
does not mean much to me as I am 71 and spending the income
anyway.

PEY is paying about 3.55% now. It has an ER of 0.5%, avg cap of
16.7B, P/E = 17.9 and P/B =2.3. The fund buys the 50 highest
yielding stocks with at least 10 years of consecutive dividend growth
over the last 10 years. It tracks the Mergent Dividend Achievers
Index. The beak down is 25.9 large cap value, 32.3 mid cap value
and 20.2 small cap value, with the rest in growth stocks.

Like DVY, it is heavily concentrated in Financial (37.5%) and
Utilities (40.6%). The stocks in the index are almost equally
weighted according to the dividend yield (I think).

I don't like the heavy concentration in financial because they will
take a hit in a rising interest rate environment. But, NAV volatility
won't matter much if you only collect dividends. The historical
dividend growth rate has been 11.41%

Has anybody considered PEY instead of DVY? Both look pretty good
to me but I still think WII might be a better bet because of better
diversification and slightly higher total return. You also get a better
ER, especially with Admiral, with WII.

Cheers,

Charlie

 

[Cut-Throat]

Isn't Wellsely paying a higher dividend currently? - What are you trying to achieve by switching from Wellsely?

 

[charlie]

Hi CT,

With 60% in a 5 year ladder at PenFed and 40% in one of the
stock funds, I can achieve a higher average yield than with
Wellesley and probably a lower overall ER. Also, the 2.5yr
average maturity of the ladder provides some inflation protection.

Cheers,

Charlie

 

[Cut-Throat]

Hi CT,

With 60% in a 5 year ladder at PenFed and 40% in one of the
stock funds, I can achieve a higher average yield than with
Wellesley and probably a lower overall ER.  Also, the 2.5yr
average maturity of the ladder provides some inflation protection.

Cheers,

Charlie

Oh, so what you are doing is basically taking the Bond Portion and getting about 5% or so on CD's? - Sounds reasonable, I guess.

 

[ats5g]

Charlie,

Some articles on the differences b/w DVY + PEY:

Selecting the Right Dividend ETF

Taking stock of the two dividend ETFs [may require free registration @ indexuniverse.com]

I think I'd go with DVY because:

1) It has more stocks [twice as many] in more industries. Though Wellesley only has around 54 stocks, it is fairly diversified by industry.

2) DVY may have a lower bid/ask spread because it is older and may be more heavily traded, and thus cheaper for you to buy.

3) It is cheaper - 0.40% for DVY vs. 0.50% for PEY.

There is yet another option, Vanguard Equity Income fund. VEIPX [the investor shares], or VEIRX [admiral shares if you've got over $100,000]. Also note that John Ryan, the same guy that manages the stock portion for Wellesley also manages a good portion of VEIPX.

VEIPX is focused more on high dividend payers while Windsor II is more focused on value stocks.

Minor note which you've probably already considered: Since the Penfed CD's are not transferable [I believe], you won't get any cap gains [or cap losses for that matter] from the bonds in Wellesley, which allowed for a fairly smooth ride. This may not be a big concern though.

- Alec

 

[preben]

Good post ats and personally I had to decide btween DVY and VEIPX. PEY was out for reasons already covered.
VEIPX is cheaper than DVY (0.32% e/r) and one gets some experienced management as already mentioned. It is also broader diversified. I am mostly an indexer but mainly due to low costs.

As I am in distribution phase the lower volatility of VEIPX was the final factor but should I need a bit more div income later, I will switch to DVY.

Cheers!

 

[wildcat]

Charlie -

I looked at PEY. It is an interesting index of stocks and based on the Dividend Achievers Index. Based more in dividend growth rather than just high dividend payers. I would take it over DVY but that is me. Powershares are moving into some nice niche categories.

 

[charlie]

Thanks to all of you for your thoughtful replies.

Alex, your comments on VEIPX vs. Windsor II will make me take
a closer look at VEIPX. I have favored Windsor II in the past because
of its slightly higher total return and own it in my IRA as the large
value component of a Coffeehouse allocation. The fact that
VEIPX is more dividend oriented may swing the balance.

Thanks again,

Charlie l

 

[cute fuzzy bunny]

Thats more or less where I ended up Charlie...the admiral shares of veipx are pretty cheap, well diversified, pay a decent dividend, have good upside for growth, the volatility is decent, the management well seasoned and showing a good track record.

I looked at the etfs and they're not bad. But I didnt see anything to compell me to break up my money and open a brokerage account.

About the only reason I'm considering moving money from wellesley/wellington to equity income is to migrate from bond payments (taxed at ordinary income) to qualified stock dividends (taxed at 5/15% capped).