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HEWW: An Currency Hedged Version Of EWW

A currency hedged version of a long established fund. A carefully weighted fund through the use of a 25/50 ‘capping methodology’. The fund selects from the full range of Mexican companies: small, medium and large caps. The iShares Currency Hedged MSCI Mexico ETF (NYSEARCA: HEWW ) is the most recent of Mexico focused funds, having been incepted on June 29, 2015. Since the fund has been trading only a few weeks, it offers no real return metrics to compare. However, by examining a nearly identical fund, the fund’s allocation, the structure of the Mexican economy and the relative stability of the Mexican Peso, the interested investor will have a gauge of the future potential of the fund. Name and Symbol Description Inception iShares Currency Hedged MSCI Mexico Tracks the MSCI Currency Hedged IMI Mexico 25/50 Capped Index June 29, 2015 SPDR MSCI Mexico Quality Mix ETF (NYSEARCA: QMEX ) Tracks the Total Return performance of the MSCI Mexico Quality Mix A-Series Index September 17, 2014 Deutsche X-trackers MSCI Mexico Hedged Equity ETF (NYSEARCA: DBMX ) Tracks the MSCI 25/50 U.S. Dollar Hedged Index January 23, 2014 iShares MSCI Mexico Capped ETF (NYSEARCA: EWW ) Tracks the MSCI unhedged IMI Mexico 25/50 Capped Index Data from iShares, SPDR, DeutschebankMarch 12, 1996 (Data from iShares, SPDR, Deutschebank) The new fund tracks the Morgan Stanley Capital International Indices (MSCI) Mexico Investible Market Index (IMI) 25/50 100% U.S. Dollar Hedged Index . According to the prospectus , the fund is passively managed. The fund is ‘capped’: it is a capitalization weighted index . The 25/50 ‘capping methodology’ means that no single issue exceeds 25%. All issues with a weight above 5% do not cumulatively exceed 50% of the underlying index weight. The index includes large, mid and small cap companies. (click to enlarge) (Data from iShares, SPDR, Deutschebank) The careful investor is sure to ask how necessary is it to have a currency hedge? There’s a clear answer to this question. In a nutshell, central banks are obligated to maintain a stable currency. Having a too strong or too weak currency will create negative effects on any economy. For example, the usual way for a central bank to slow inflation is to raise short term interest rates. However, this runs the risk of slowing the economy too much; something the recently emerged Mexican economy would not want to do. Banco de Mexico has come up with an innovative solution. It regularly auctions U.S. Dollars from its currency reserves. This enables the central bank to strengthen the currency by reducing the supply of Pesos in the economy, while at the same time maintaining sustainable lending rates. Because of the scope and scale of the top global reserve currency U.S. Dollar, Mexico’s export product prices to the U.S. are hardly affected. However, large swings in relative currency values could negatively impact the dollar value conversion of a portfolio, a Mexican focused fund for instance, even though the portfolio’s fundamentals are unchanged. (Data from iShares) As mentioned above, HEWW has just recently been listed for trading. Fortunately, there’s a way to accurately gauge market performance by examining the identical but ‘unhedged’ capped index fund, the iShares MSCI Mexico Capped ETF and compare that with other Mexico focused funds. It was a simple matter to download the holdings of each fund to a spreadsheet, alphabetizing them and then comparing entry by entry. Indeed the holdings of EWW and HEWW are identical with the exception that the dollar hedged fund has positions for currency forward contracts, naturally. (Data from iShares) There are two other funds for comparison. DBMX also tracks the MSCI 25/50 capped index, although it omits a consumer discretionary and a financial holding which occur in the iShares funds. QMEX tracks about half of the companies in the 25/50 capped index, 34 in total, along with two others not listed in the 25/50 capped index. QMEX also holds a position of liquid U.S. Dollars reserves. Fund Net Assets (millions) Shares Outstanding Number of Holdings Average Volume Premium to Discount Expense Ratio P/E Equity Beta 12 month Trailing Yield EWW $1479.953 26,100,000 60 734,113 0.00% 0.48% 31.11 1.09 1.62% DBMX $4.5399 200,001 57 2,621 0.29% 0.50% 17.7 0.76 2.79% QMEX $2.44 100,000 33 224 -0.16 0.40% 22.99 1.61 1.43 (Data from iShares, SPDR, Deutschebank) Investing in a country focused fund is essentially investing in the overall economy. So a basic understanding of what drives the Mexican economy is needed. As mentioned, Mexico has an export economy and it’s clear from the chart below, it is heavily dependent on its NAFTA partner U.S. economy. (Data from iShares) Bilateral trade with the U.S. is just over $500 billion comparable to bilateral U.S.-Canadian trade of about $600 billion. In total, bilateral trade with both Canada and the U.S. well exceeds trade with any other individual nation; however, Mexico has other large regional partnerships and free trade agreements. The Mexican government has focused on building an extensive free trade network. Nearly 90% of Mexico’s global trade transacts through free trade agreements. According to the Secretariat of Economy, other free trade partnerships in force exist with Australia, Korea, Singapore, Israel, India and the European Free Trade Association. Mexico is a participant in the future Trans-Pacific Partnership. In the America’s, aside from NAFTA, Mexico has free trade agreements throughout Latin America, South America and with Cuba. The point of the matter is that even though Mexico’s largest trading partner is the U.S.; Mexico has an extensive free trade network outside of North America. The Mexican economy has been affected by the collapse of global oil prices. However, Mexico is not a petro-economy. Surprisingly, 14% of total power production is derived from renewable resources: 11% from hydro plants and 3% from geothermal and biomass, according to U.S. EIA data. The government is expanding wind generation projects including plants on the Baja peninsula for power exports to the U.S. Mexico is a net exporter of crude petroleum, producing about 2.5 million bbl of crude oil per year and consuming about 2 million bbl; the remainder is exported. Mexico has proven reserves of 9.8 billion bbl, approximately. Mexico is a net importer of natural gas, producing about 1.64 billion ft 3 consuming almost 2.3 billion ft 3 . Lastly it is a net importer of coal, mining 16.7 million tons and consuming 20.7 million tons. What it adds up to is that the economy is somewhat affected by global petroleum markets, but it is certainly not totally dependent on volatile global petroleum markets. (Data from iShares) In the recent downturn in global oil prices, the government responded accordingly by reducing government spending, which is about 0.7% of GDP. The Ministry of Finance estimates GDP growth to be within the range of 2.2% to 3.2% in 2015; 2.9% to 3.9% for 2016. The Bank of Mexico expects inflation to remain at the 3% target rate. The important point is that the fiscally responsible government is doing a good job keeping inflation very close to the target, keeping the Peso stable and maintaining slow but steady growth. As it stands now, an increase in demand from the U.S. will bode well for the Mexican economy. To be sure, Mexico has many domestic and international concerns which must be solved. However, while negative news might make attention getting headlines, those headlines obscure the years of positive achievements of the Mexican government and Banco de Mexico since the currency crises of 1994-1995. Those achievements include maintaining a sustainable inflation rate and a stable currency in spite of a global credit crisis, still reverberating in Europe and Asia. Also, the Ministry of Trade has done a remarkable job in establishing what might be the most comprehensive ‘free trade network’ in the world. In the private sector, banks are well capitalized and regulated. Industry isn’t just manufacturing but also includes research and development with global partners. Unhedged EWW Returns After 1 Year After 3 Years After 5 Years After 10 Years Since Inception 3/12/1996 Total -14.14% -0.73% 5.00% 9.48% 11.46% Market Price -14.45% -1.08% 5.04% 9.41% 11.43% Benchmark Index -13.86% -0.73% 4.75% 9.03% 12.12% (Data from iShares, SPDR, Deutschebank) According to iShares the currency hedged ETF H EWW fund has net assets of $2,466,407. The expense ratio is rather high at 1.10%; however, there is a ‘fee waiver’ which results in an expense ratio of 0.51%. The fund is virtually identical to the long established iShares EWW fund with the addition of a currency hedge. To sum up, several Mexico focused funds have been created over the past two years. This most recent addition is virtually identical to the long established iShares Mexico Capped ETF. Recently, the returns reflect the still recovering global economy but returns of EWW since inception are respectable. Naturally, the investor must choose between competing funds, however, upon close examination, the brand new iShares currency hedged fund actually has a long established track record. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: “CFDs, spread betting and FX can result in losses exceeding your initial deposit. They are not suitable for everyone, so please ensure you understand the risks. Seek independent financial advice if necessary. Nothing in this article should be considered a personal recommendation. It does not account for your personal circumstances or appetite for risk.”

HEDJ Vs. DBEU: Same Vista, Different Perspectives

Summary Two well-structured funds but with two different approaches. One is very comprehensive the other selective. One hedges the Euro, the other hedges non-Eurozone currencies as well. The EU is going through some tough times. However, investors should look for potential opportunities rather than avoiding the region altogether. There are two funds which cover all of Europe. The Deutsche X-trackers MSCI Europe Hedged Equity ETF (NYSEARCA: DBEU ) is quite comprehensive with approximately 448 holdings as well as having multiple currency hedges. The second fund is the WisdomTree Europe Hedged Equity ETF (NYSEARCA: HEDJ ) . It is far more selective, holding approximately 134 securities and hedges only the Euro. The WisdomTree fund has been established longer having been incepted 12/31/2009 during the most troubled financial crises years. Deutsche Bank X-Tracker fund is more recently establish, incepted on 10/1/2013. (click to enlarge) The funds allocate sectors differently. For example, WisdomTree allocates its top three sectors, Industrials, Consumer Staples and Consumer Discretionary nearly equally. The Deutsche X-Tracker fund’s most heavily weighted sectors are Financials, followed by nearly equal in Health Care and Consumer Staples. (click to enlarge) The Deutsche X-Tracker fund’s heaviest concentrations are Great Britain, France, Switzerland and Germany while WisdomTree’s distribution is most heavily concentrated in Germany, France, Spain and the Netherlands. (click to enlarge) Five of the X-Tracker top ten holdings are global Health Care giants. They account for just over 43% of the 10 heaviest weighted holdings. On the other hand, the WisdomTree fund is less defensive and more diversified. No single top 10 holding comprises more than 13% of those 10 heaviest weightings. (click to enlarge) Since the funds came to market several years apart, their side by side performance comparison must be broken up into parts. The WisdomTree Hedged Europe Equity fund began trading January 7 of 2010, closing at $47.48. The X-Tracker fund began trading 3 years and 9 months later, October 1 2013 closing at $25.22. HEDJ’s closing price on the first day of DBEU’s trading was $53.80. The first of the two tables below shows HEDJ’s performance from its inception to the day of DBEU’s inception and then HEDJ’s performance over the entire life of the fund. Annualized Returns for HEDJ 1/1/10 through 10/1/2013 From 12/31/2009 to 7/6/2015 Dividend 2.67% 3.35% Stock 3.31% 4.50% Total 5.76% 7.29% The second table compares the two since DBEU’s inception date of 10/1/2013. Annualized from 10/1/13 HEDJ DBEU Dividend 4.82% 6.12% Stock 7.26% 3.27% Total 11.87% 9.27% HEDJ tracks the parent company’s WisdomTree Europe Hedged Equity Index . On the other hand, DBEU tracks Morgan Stanley Capital International MSCI Europe Hedged Equity Index. It’s important to note that both funds are passively managed. Here is a brief comparison of each of the top five holdings by sector weighting as of July 7, 2015. Top 5 Comparison Table WisdomTree HEDJ Top Five Holdings by Weighting X-Trackers DBEU Top Five Holdings by Weightings Anheuser-Busch Inbev (NYSE: BUD ) Consumer Staple P/E 18.68 Price to Cash Flow 12.11 Dividend Yield 2.11% Pay Out Ratio 26.69 Growth 5.07% Fund Percent Holding 5.733% Native Currency Euro Nestle ( OTCPK:NSRGY ) Consumer Staple P/E 15.22 Price to Cash Flow 22.03 Dividend Yield 3.20% Pay Out Ratio 0.00 Growth -0.59 Fund Percent Holding 2.768% Native Currency Swiss Franc Telefonica (NYSE: TEF ) Telecom Services P/E 20.84 Price to Cash Flow 5.18 Dividend Yield 6.52% Pay Out Ratio 0.00 Growth -2.82% Fund Percent Holding 5.517% Native Currency Euro Novartis (NYSE: NVS ) Health Care P/E 22.79 Price to Cash Flow 21.41 Dividend Yield 2.70% Pay Out Ratio 0.00 Growth 1.74 Fund Percent Holding 2.687% Native Currency Swiss Franc Banco Bilbao Vizcaya Argentari (NYSE: BBVA ) Financial P/E 17.37 Price to Cash Flow 11.91 Dividend Yield 4.71% Pay Out Ratio 33.28 Growth -26.32 Fund Percent Holding 5.021% Native Currency Euro Roche Holdings ( OTCQX:RHHBY ) Health Care P/E 24.54 Price to Cash Flow 18.98 Dividend Yield 3.01% Pay Out Ratio 73.94 Growth 1.46 Fund Percent Holding 2.329 Native Currency Swiss Franc Siemens ( OTCPK:SIEGY ) Industrial P/E 12.89 Price to Cash Flow 9.46 Dividend Yield 3.70% Pay Out Ratio 46.28 Growth 2.23% Fund Percent Holding 4.937% Native Currency Euro HSBC (NYSE: HSBC ) Financial P/E 13.23 Price to Cash Flow N/A Dividend Yield 5.65% Pay Out Ratio 58.31 Growth -14.86% Fund Percent Holding 2.035% Native Currency Great British Pound Daimler ( OTCPK:DDAIY ) Consumer Discretionary P/E 11.09 Price to Cash Flow 6.53 Dividend Yield 3.11% Pay Out Ratio 33.19 Growth 10.97% Fund Percent Holding 4.642% Native Currency Euro BP PLC (NYSE: BP ) Energy P/E 44.12 Price to Cash Flow 5.92 Dividend Yield 5.95% Pay Out Ratio 163.64 Growth -16.11% Fund Percent Holding 1.462% Native Currency Great British Pound Data from Reuters; Data TTM unless otherwise indicated It’s interesting to note that all 10 of WisdomTree’s top holdings are headquartered in the Eurozone. On the other hand, only four of X-Tracker’s top ten holdings are headquartered in the Eurozone. Royal-Dutch Shell is headquartered in both London and the Netherlands. The rest are headquartered in non-Eurozone Great Britain or non-EU member Switzerland. According to X-Trackers and WisdomTree, both hedge with forward contracts, although WisdomTree hedges only the Euro. What this implies is that U.S. Dollars invested in the WisdomTree fund may be more exposed to currency fluctuations since 9 of the 28 EU members are not Euro zone countries, although one of the nine, Denmark maintains a very close Euro peg and the Czech Republic maintains a conversion cap. The last comparisons are made of a few average metrics. The top ten holdings of the WisdomTree Fund outperform the X-Tracker fund in every category. However it is important to observe that HEDJ has a higher beta whereas the X-Tracker fund performs virtually with the market. Top Ten Averages P/E Price/Cash Flow Dividend Yield Payout Ratio Growth Beta HEDJ 18.191 10.816 4.085 37.50 2.004 1.295 DBEU 25.219 14.367 3.987 71.732 -3.19 1.044 There are a few ‘outliers’ in each fund, dual-listed companies, for example DBEU holds Investec, headquartered in South Africa and Carnival Cruise headquartered in U.S. Lastly, 81 of the 134 holdings in the WisdomTree fund also are held in the X-Tracker fund; in other words just about 61% of the WisdomTree fund intersects the X-Tracker fund. To sum up each fund covers Europe, though one is far more broad based than the other, although there is some overlap of each fund. The WisdomTree Fund is a more selective fund, whereas the X-Tracker fund is a broad representation of the entire European market. Also, the investor needs to weigh-out the need for currency hedging. Hedging mitigates the risk but does not eliminate it and the hedge might work against the portfolio under some circumstances. The WisdomTree fund hedges only the Euro; the X-Tracker Funds hedges the Euro, Swedish Krona, Great British Pound, Danish Krone, Swiss Franc and Norwegian Krone. The Europeans will not be too quick to give up on their long awaited and hard won economic union. Modern Europe in spite of all its shortcomings has a state-of-the-art infrastructure, an overall advanced economy and culture. More than likely Europe will resolve its current issues as well as those in the future. The question for the investor is how to be properly positioned: through the selective WisdomTree European Hedged Equity Fund or the broader based Deutsche X-Tracker MSCI Europe Hedged Equity ETF? The WisdomTree fund has the potential to outperform the market quicker. However, the higher volatility incurs higher risks. On the other hand, the X-Tracker fund’s volatility matches the market hence minimizes the risk. Either one of the funds will eventually reflect better times. The investor would be wise to at least consider investing in a European fund, but to completely ignore Europe would be foolish. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: CFDs, spread betting and FX can result in losses exceeding your initial deposit. They are not suitable for everyone, so please ensure you understand the risks. Seek independent financial advice if necessary. Nothing in this article should be considered a personal recommendation. It does not account for your personal circumstances or appetite for risk.

The SPDR S&P Global Dividend ETF: Do High Yield Dividend ETFs Reach Too Far?

A globally diversified, passive, total return fund which seeks very high dividend payouts. Several of its heaviest weighted companies pay dividends in excess of net income. Several heavily weighted assets have dividends potentially at risk. We all know the famous biblical anecdote of David interpreting the Pharaoh’s dream. There were to be seven years of plenty followed by seven years of famine. Pharaoh heeded the analysis and prepared the kingdom for the lean years. It’s fair to say that this might have been history’s very first documented investment advice. It required discipline to make the right choices at the right time and then stick to a plan. Comparatively speaking one might say that these are lean year for dividends but it certainly won’t remain this way forever. So, how should a retirement portfolio be positioned for both the lean and fat years? One way is to invest in a dividend focused ETF, but the investor must tread carefully here. The idea is not just to get a dividend return, but to also minimize risk. The important at-a-glance metrics to examine carefully are: trailing dividend yields, payout to net income ratio and the strength of cash flow. These three will give an indication of consistency and sustainability of the current dividend. Here’s one example: State Street Global Advisors’ SPDR S&P Global Dividend ETF ( WDIV ) . According to State Street , the fund’s objective is ” to seek to provide investment results that, before fees and expenses, correspond generally to the total return of the S&P ® Global Dividend Aristocrats Index.” The prospectus states that the fund’s strategy is to invest in a subset of the index, being at least 80% invested at all times. Some key rules are: investing in securities having paid increasing or stable dividends for at least ten years, a market cap of at least $1 billion, an average daily trade value of at least $5 million, a non-negative ‘Dividend to Net Income ratio’ and a maximum indicated dividend yield of 10%. Under these rules, the top 100 qualified stocks are selected with no more than 20 companies from any one country. The weightings of individual holdings are capped at 3% and individual country weightings capped at 25%. (source: WDIV ) The top five country weightings accounting for 65.72% of the fund are: United States, 21.59%; Canada, 15.71%; United Kingdom, 14.52%; France, 6.66% and Australia at 6.64%. EU member nations account for 35.08% of the fund. One must also consider that the fund includes companies based in emerging market countries such as South Africa, Thailand, Brazil and Malaysia, comprising 6.26% of the fund. The fund’s prospectus makes no mention of currency hedging, hence there’s a currency risk although the fund’s broad global diversification should mitigate those risks. 29.62% of the fund is held in cyclically defensive sectors: Utilities, 15.33%, Consumer Staples, 11.22% and Health Care, 3.07%. Those sectors most affected by economic cycles comprise 36.7% of fund: Financials, 25.45%, Consumer Discretionary, 7.74% and Materials, 2.98%. Lastly, 34.21% are held in semi-cyclicals (or cyclically sensitive), 11.65% in Industrials, 10.13% in Energy, 8.36 in Telecom Services and 4.07 in IT. (source: WDIV ) The following gives a snapshot of the top ten holdings with yields and dividend statistics. HollyFrontier Corp (NYSE: HFC ), the fund’s top holding at 2.61%, is a U.S. based petroleum refiner, processing 443,000 barrels per day producing gasoline, diesel, jet fuel, asphalt and lubricants. HFC operates 5 refineries through subsidiaries and also owns a 39% interest in Holly Energy Partners. Its dividend yield is 3.20%, and above the 1.68% industry average in the volatile oil industry. Over the past 5 years its average yield is 3.22%. Its trailing 12 month target payout ratio is high at 155.14% of net income; however, it manages to pay consistently, with a 5 year dividend growth rate of 61.15%. The share price to cash flow multiple is 10.65, well within the average S&P price to cash flow multiple of 14 times. Neopost ( OTCPK:NPACY ), at 1.67% of holdings, is a global provider of mailing solutions, digital communications and shipping services, based in Bagneux, France. The company services 90 countries with subsidiaries in 31 of those. Neopost targets small and midsized companies in Europe although 40% of its business is from North America. To put Neopost in perspective, its primary competitor in the industry is Pitney Bowes . The ADR carries a semiannual dividend of $0.1357, or 7.98% annually. Its dividend yield 9.62% is well above the industry average, 2.65%. Similarly, its 5 year average dividend yield of 7.20% is also well above the industry average at 2.66%. Neopost’s target payout ratio is just over 100% of net income, with a 5 year 1.10% dividend growth rate; the share price to cash flow multiple is 7.61. In other words, Neopost dividend target is 100% of income however manages to sustain and grow their dividend. U.S. based R.R. Donnelley & Sons Company (NASDAQ: RRD ), at 1.63% of holdings. What R. R. Donnelley does may best be described as ‘getting the message across’, through publishing, retail services, digital print, books, magazines, catalogs, inserts, statements and manuals for its clients. Donnelley’s dividend yield of 5.75% is well above the industry average 2.25% yield. Its 5 year 6.67% yield average also tops the industry’s 3.04% average. It needs to be noted that Donnelley’s expected payout ratio is 123.3, indicating that, technically, it’s distributing more than it earns. Over the past 5 years dividend growth is nil and it has a price to cash flow multiple of 4.71, possibly indicating declining revenues and a low share price Coca-Cola Amatil Limited ( OTCPK:CCLAF ), 1.45% of holdings, based in Sydney, Australia. Amatil is Coca-Cola’s bottler and distributor serving the South Pacific region. Amatil’s dividend yield is 3.28%, has a 5 year average yield of 2.28 but, importantly, has a sustainable payout ratio of 77.44% of net income, a 5 year dividend growth rate of 8.72% and priced at a somewhat high 22.42 times cash flow. This is a solid dividend paying holding. Centrica ( OTCPK:CPYYY ), 1.43% of holdings, whose business is in ‘ every stage in the energy chain ‘, from sourcing on the industrial side to servicing on the consumer side. Centrica employs 30,000 in the U.K., Ireland, Europe, North America and Trinidad. Centrica’s dividend yield is 4.91% and has a 5 year average yield 4.84%. Its 5 year dividend growth rate is 1.07%. Due to falling energy prices Centrica cut its dividend to nearly zero. Its expected payout ratio is 0.00%. Shares are priced at 5.99 times cash flow. (click to enlarge) (source: combined) Wm Morrison Supermarkets ( OTCPK:MRWSF ), 1.43% of holdings. As the name implies it’s a retail supermarket chain and offers home delivery. It’s the 4th largest supermarket chain in the U.K. Wm Morrison has fallen on tough times and this is one of the weaker holdings. Shares have fallen 15% in the past 52 weeks. However, Q1 sales did improve and market share remained steady at 10.9%. It will be removed from the FTSE 100 and placed in the FTSE 250. Although the historical statistics indicate that the company paid a 0.5004 semiannual dividend, has a 5 year average dividend yield of 4.48% and a 5 year dividend growth rate of 10.73%, it’s necessary to point out that the company has a negative P/E at -21.65. In March of 2015 the dividend was cut 63%. Hence, a second company in the top ten with an expected 0.00% payout ratio. Currently, it is selling at approximately 4.02 times cash flow Universal Corporation (NYSE: UVV ), 1.42% of holdings, is a global supplier of cured leaf tobacco for consumer tobacco product manufactures. Their services include packing, storing and financing. Universal conducts business in 30 countries and employs 24,000 permanent and seasonal workers. The Company pays a $0.52 share dividend or 3.67% annualized, a 5 year dividend average of 3.97%, a 5 year dividend growth rate of 2.06% and a sustainable expected payout ratio of 47.36%. Shares are priced at 8.95 times cash flow, well inside the S&P average. Not only is Universal a solid dividend paying company, but its target payout ratio has plenty of room to grow. UBM PLC ( OTCQX:UBMPY ), 1.40% of holdings, is a London based marketing, communications and media consultants, specializing in digital services as well as ‘person-to-person’ events, such as trade shows, exhibitions, conferences and live events. Its ADR carries a semiannual $0.16 per share dividend, 3.74% annually, well above the industry average of 1.48%. Its 5 year average yield is 3.97% with a 5 year dividend growth rate of 2.06%. The payout ratio is a very sustainable 47.36%. It recently announced a dividend of $0.24. The company has also been recently upgraded by leading analyst, for example Societe Generale ( OTCPK:SCGLY ) and BNP Paribas ( OTCQX:BNPQY ), to ‘buy’. UBM’s expected payout ratio is 58.26% of earnings and is priced at 12.40 time cash flow. The sustainable payout ratio, analyst upgrades and cash flow multiple within the S&P’s average makes it a solid holding. Williams Companies (NYSE: WMB ), Inc., 1.38% of holdings, is a U.S. based and recognized by Forbes as the most admired energy company for 2015. It is a supplier of liquid natural gas, olefins used in plastics production, owns interstate natural gas pipelines and processes oil-sands. Williams Companies provides services through subsidiaries such as Transco , Gulfstream and Northwest Pipeline . The company pays a quarterly dividend of $0.59 per share, annualized to about 4.86%, a 5 year average yield of 3.24%, a very notable dividend growth rate of 26%, a sustainable payout ratio of 76.96% of net income and trades at 10.36 times cash flow. Williams is a well-founded dividend paying asset. New York Community Bancorp Inc. (NYSE: NYCB ) at 1.36% of holdings, is a New York State Charted Bank Holding Company of New York Community Bank and New York Commercial Bank . These subsidiaries service both consumers and business banking needs in New York City, New Jersey, Florida, Ohio and Arizona. The holding company pays a quarterly dividend of $0.25, about a 5.85% annual yield, a strong 5 year average yield of 6.48%, but having no dividend growth over those 5 years compared to the industry average of 18.04% dividend growth. Its expected payout ratio is high but sustainable at 90.92% and trades at 15.84 times cash flow, slightly above the S&P average. With an improving U.S. economy, particularly in the Florida housing market, it may well be worth the risk. (click to enlarge) The fund is diversified with 102 holdings and a dividend yield of 3.95%; 3.84% less fees and expenses. The recent fixed income selloff may have contributed to the -2.40% one month return. Year to date the fund returned 3.30% and since inception, 9.21%. The average top ten cash flow multiple is 10.3. This may be compared with the benchmark MSCI S&P ® Global Dividend Aristocrats Index yield of 4.61% and a price to cash flow multiple of 8.17. The fund’s FY1 P/E ratio is 15.30, identical with the index as well as the 5 years earnings growth of 5.44%. The market capitalization of the fund is $63.51 million with 950,000 shares outstanding. Currently the market premium is 0.73% over NAV and total management fees are 0.40% annually. (source: WDIV ) There are similar funds for instance the Guggenheim S&P Global Dividend Opportunities Index ETF (NYSEARCA: LVL ), weighted towards Energy, Financials and Utilities. However, just looking at a few of the most heavily weighted companies revealed payout ratios in the hundreds and several others currently having 0.00% payout targets. Another high yield dividend focused ETF, the First Trust Dow Jones Global Select Dividend Index ETF (NYSEARCA: FGD ), also had similar metrics. Since WDIV is a rule based passively managed fund, one should expect variations as companies are dropped or added to the fund as the rules guided metrics change. Generally speaking, though, there are several heavily weighed components which do pay a high dividend, but those dividends are potentially at risk. Granted, the fund will adjust for that, but the question becomes whether or not the passively managed fund will make those changes in a timely manner. The investor must keep the goal in mind and what the alternatives are. The most secure assets like U.S. Treasuries, AAA rated foreign sovereign or even the largest most solidly founded corporations are very highly priced, hence have lower yields. Paying up for such small returns is not a good strategy, especially when a correction is almost certain to happen when the major central banks unwind their QE programs. Similarly, just reaching for the highest yields without regard to risk will lead to similar ‘negative’ results. High yielding ETFs might be okay if an investor has available ‘risk capital’, but generally, these funds seem to be reaching a little too far out on the limb to stake a major portion of one’s capital in the interim. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: CFDs, spread betting and FX can result in losses exceeding your initial deposit. They are not suitable for everyone, so please ensure you understand the risks. Seek independent financial advice if necessary. Nothing in this article should be considered a personal recommendation. It does not account for your personal circumstances or appetite for risk.