A Global Telecom ETF For A Low-Yielding World

NEW YORK (ETF Expert) --For months, I've expressed optimism on China's slow-n-steady approach to providing measured stimulus to its economy.

Rather than drastically cut interest rates or entertain unconventional bond-buying measures like their central bank counterparts in the developed world, China's leadership allowed its slowdown to play itself out.

The result? China's manufacturing gauge (PMI) indicated that the segment expanded for the first time in three months. Additionally, we have seen several months of improvements in manufacturing activity, suggesting that contraction has run its course.

In "Three ETF Categories That Are Not Afraid Of The Big Bad Cliff," I highlighted three investment areas to target, in spite of the well-documented fiscal headwinds in the United States.

Granted, the negotiations in a lame-duck Congress could get hairy. Yet, the fear and loathing for elected officials should also present dip-buying opportunities for owning Asian neighbor ETFs. They are benefiting immensely from stabilization in the world's second largest economy.

That said, sensible diversification requires other asset groupings that are less tied to global economic cycles. One can use the same dips to pursue a dividend income stream from high-yielding assets. Not just any high yielder, but those individual positions or funds with a "5/5 plan."

In essence, a 5/5 plan is a valuation metric that many investment advisers use to find a potential portfolio fit. We often look for investments with a 5% dividend yield and a 5% dividend growth rate.

Unfortunately, this type of asset is extremely difficult to find in the largest corporations worldwide. Smaller entities like individual pipeline partnerships and individual real estate investment trusts can get there. Investors can consider things like Boardwalk Pipeline Partners ( BWP) and Health Care REIT ( HCN).

Yet, the volatility in the individual securities may make some investors skittish. What's more, while I have been a long-time fan of exchange-traded vehicles dedicated to the pipeline partnership arena, there are a number of drawbacks that should give one pause for concern.

That brings us back to dividend stocks of the largest companies in the world. If there are precious few with the ability to generate the requisite 5% yield and a 5% dividend growth rate, why am I still talking about it? For one thing, a continuation of the market pullback could open up a number of opportunities. Secondly, there is a sector ETF that is currently approaching the desired criteria.

The iShares Global Telecom Fund ( IXP) has had modest success in 2012; downside pressure is due in large part to foreign exposure, particularly in Spain.

Yet, the dividend yield is roughly 4.75% and its constituents have the capacity to raise their dividends annually. Moreover, with a three-year beta of a mere 0.66, the volatility is a fraction of prominent benchmarks like the S&P 500 or the MSCI All-World Index.

IXP has shown relative weakness since the S&P 500 hit multi-year highs back on Sept. 14. In addition, IXP did not find support at its 50-day moving average and is approximately 5% below its recent peak.

Nevertheless, a pullback to the 200-day trendline may prove to be an ideal entry point for dividend investors. Indeed, the income can be counted on with less volatility than world stock benchmarks and at a price discount between 7% and 10%.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Disclosure Statement: ETF Expert is a website that makes the world of ETFs easier to understand. Gary Gordon, Pacific Park Financial and/or its clients may hold positions in ETFs, mutual funds and investment assets mentioned. The commentary does not constitute individualized investment advice. The opinions offered are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial or its subsidiaries for advertising at the ETF Expert website. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert at the site.

Gary Gordon reads:

Real Clear Markets
Jeff Miller
indexuniverse
Charles Kirk
On Twitter, Gary Gordon follows:

Jonathan Hoenig
Doug Kass
Hard Assets Investor

More from ETFs

3 Great Stock Market Sectors Millennials Should Invest In

3 Great Stock Market Sectors Millennials Should Invest In

Why Millennials Are Ditching Stocks for ETFs

Why Millennials Are Ditching Stocks for ETFs

60 Seconds: What's the Difference Between an ETF and a Mutual Fund?

60 Seconds: What's the Difference Between an ETF and a Mutual Fund?

Video: Why Shark Tank Star Kevin O'Leary Is Doubling Down on Internet Stocks

Video: Why Shark Tank Star Kevin O'Leary Is Doubling Down on Internet Stocks

Simple Investing Strategies Stand the Test of Time

Simple Investing Strategies Stand the Test of Time