Under The Hood: Know Your Dividend ABCS

It has often been lamented that dividends are good and international dividends are even better because non-U.S. companies have a penchant for paying bigger dividends than their U.S. counterparts in the same sector. For investors looking to get their dividend passports stamped a bit more, there's no shortage of options in the ETF universe and one of those international dividend ETFs is the newly minted Guggenheim ABC High Dividend ETF ABCS, today's “Under The Hood” candidate. Still less than two months old and featuring an expense ratio of 0.65%, ABCS is off to a fine a start in terms of accumulating assets as investors have poured nearly $5.94 million into the fund, indicating that dividends, domestics and foreign, are still a top priority for investors. ABCS holds 30 stocks, comprised of American depositary receipts from Australia, Brazil and Canada and some issues that are only listed in those countries. In terms of international dividends, those are three great destinations. In many instances, Australian and Canadian firms offer noteworthy dividends in comparison to their U.S. rivals and Brazil is arguably the top dividend destination among the emerging markets. On the down side, Brazil is the rub with ABCS. At least right now. Brazil accounts for over 51% of the new ETF's weight and while we would ding any ETF for that lack of geographic diversity, that heavy allocation to Brazil is bad news for ABCS in the here and now. With its Wednesday decline, Brazil's benchmark Bovespa Index is now down 20% from its November peak. That's a bear market folks and inflation is the culprit, a major concern given that Brazil's central bank has raised interest rates eight times in the past 15 months. ABCS does deserve a nod in terms of sector diversity as six sectors, consumer discretionary, utilities, telecom, materials, consumer staples and industrials, get double-digit weights. Also in the ETF's favor is a meager 5.44% allocation to financials. Timing has been another issue facing ABCS as the ETF ran out of the gates into the jaws of the European sovereign debt mess and the U.S. debt ceiling debacle. Those are factors ABCS cannot control, but the problem here is still Brazil. The bottom line is if you can get past the low volume that is common with many new ETFs, ABCS is a nifty idea and worth a look for the income portion of international portfolio. That said, investors can wait for a lower price because Brazil is going to be an albatross on this fund in the near-term.