Pedal Isn't To The Metal For This ETF's Dividends

Coming into 2016, it was widely expected that S&P 500 dividend growth would slow relative to the breakneck pace seen over the past several years. Some of that trend was evident in the first month of the year.

“For the 12-month period ended January 2016, payers were down 7.31%, vs. a decline of 11.52% for the non-payers. The number of dividend increases in January totaled 29, down from 33 in January 2015. One dividend was cut, matching the dividend cut made in January 2015,” according to exchange traded funds issuer First Trust. 

Illinois-based First Trust sponsors the First Trust NASDAQ Global Auto Index Fund CARZ, the lone dedicated auto industry. Already home to a low trailing 12-month yield of 1.63 percent, CARZ could prove to be a tepid-at-best dividend destination this year, thanks in part to slowing payout growth from European automakers.

“For the first time since 2010 aggregate dividends from European carmakers are expected to decline, falling 11.3% from €8.3bn to €7.4bn. Cuts from Volkswagen and Porche are set to offset increases expected from an otherwise resilient sector,” said Markit in a recent note. 

German and French automakers combine for 23.4 percent of the geographic weight in CARZ, but despite the tumbling euro, that exposure hasn't been much help to CARZ. The auto ETF is off more than 16 percent over the past year while broader consumer discretionary ETFs have notched small gains over that period. The lethargy displayed by CARZ is even more disappointing when considering Japan is the ETF's largest country weight at 39.6 percent. Japanese automakers should be benefiting from the weaker yen and stronger dollar.

U.S auto giants Ford Motor Co. F and General Motors Co. GM, which combine for 15.3 percent of the CARZ lineup, sport an average trailing 12-month dividend yield of about 4.9 percent.

“Daimler, BMW and Renault are expected to be the largest payers in 2016 (representing around 80% of total auto payments). Daimler is expected to hike its payment by 25% on stronger earnings with potential for an even larger increase if the firm strictly sticks to its 40% pay-out target. Further highlighting the dividend divergence in the sector is the positive 9% growth expected from BMW,” said Markit.

Daimler, BMW and Renault combine for 14.7 percent of the lineup found in CARZ.