High-dividend US stocks have fallen out of favor in recent months, and the Global X SuperDividend U.S. ETF (NYSEARCA:DIV) has been hit hard, down 8% in total return over the past 12 months. Compared to the growth-heavy S&P 500, DIV has underperformed by a staggering 24%. The ETF’s performance has worsened since the market’s low last October, as investors gravitate towards AI-related stocks and concentrated market appreciation.
Given the current momentum trend and the ETF’s structure, I maintain a hold rating on DIV. Additionally, seasonal trends do not support a long-term investment in DIV at this time.
DIV provides investors with exposure to 50 of the highest dividend-paying equities in the US, potentially increasing a portfolio’s yield. However, the current portfolio carries significant risk. DIV is a moderate-sized ETF with approximately $600 million in assets under management as of February 5, 2024.
One concerning aspect is DIV’s D-share price momentum grade, which is rated as ‘awful’ by Seeking Alpha ETF Grading system. While the 7.2% trailing 12-month dividend yield may attract some investors, it is crucial to consider the earnings quality of the ETF’s holdings, which is not appealing. Overall, risk metrics are on the weak side.
The ETF’s allocation reveals a majority of assets in the small and mid-cap space, with only 23% classified as large cap. DIV is classified as an ultra-value ETF, as indicated by its Negative rating from Morningstar. It currently maintains a low P/E ratio of 12. However, the combination of poor momentum, low earnings quality, and relatively high volatility does not bode well for the equity factors.
One notable aspect is DIV’s heavy allocation of 23% to the cyclical Energy sector. In contrast, the Energy sector only represents 3% of the S&P 500. Consequently, DIV is a significant bet on a potential turnaround within the oil and gas stocks. On the other hand, DIV has a meager 3% allocation in the Information Technology sector.
Taking a seasonal perspective, Seeking Alpha’s Seasonality tool indicates that now is not the ideal time to overweight DIV. Historically, it has been a weak performer during the second half of the first quarter. However, April tends to be a relatively stronger month for DIV. Therefore, patience might be the best approach currently.
From a technical standpoint, DIV shares are caught in a steep downtrend since reaching a peak in April 2022. While the S&P 500 moved lower and subsequently rebounded to fresh all-time highs, DIV’s relative performance has been dismal. With a negatively sloped long-term 200-day moving average, the bears appear to maintain control.
The RSI momentum oscillator further highlights the negative momentum, as it made a lower high while the price attempted to rally to a new near-term peak earlier this year. Key support levels to watch include $15.93 (May 2023 low) and $15.32 (multi-year low from October 2023). On the upside, the $17.44 to $17.66 zone presents crucial resistance, while the volume by price between $19 and $21 could pose challenges at higher levels.
Considering DIV’s downbeat valuation, heavily cyclical portfolio, low earnings quality, and weak seasonal trends, the technical view is not encouraging. The momentum remains negative, and the overall trend is lower.
In conclusion, I reiterate my hold rating on DIV. The ETF’s performance has been lackluster, with minimal gains since its previous review. As of now, there are no definitive signs of a trend reversal. Investors may want to consider alternatives such as the WisdomTree U.S. Total Dividend Fund ETF (DTD) or the Vanguard High Dividend Yield Index Fund ETF Shares (VYM).
