Investors are starved for yield and rightly so: stocks in the S&P500 (SPY) are only yielding 2.0% and long-dated Treasuries aren't much better.
The trouble with simply screening ETFs for the highest dividend yields is that you usually end up with a list dominated by funds with deep structural issues--currently many REITs--where dividends may very well be cut or eliminated.
One solution is to look for funds that are cheap now relative to where dividends are likely to be several years from now. We estimated 2015 dividends per share by taking the consensus figures for 2011 and compounding them by the consensus long-term EPS growth estimates (assuming that dividends will keep pace with earnings). We then compared that to the current price to figure the dividend yield that investors would enjoy five years from now even if stock prices go nowhere.
The resulting list is not dominated by potential "value traps" (there is only one REIT) but rather by many funds that would not qualify as particularly high yielding investments today. One is the WisdomTree Emerging Markets Small Cap Dividend fund (DGS), a fund we like a lot and the subject of this week's Fund Focus.
