Who wouldn't want to buy at the lowest point and sell at the highest point? So why may dividend ETFs not be worth it?

Who doesn't like to receive passive income from dividends. But picking dividend stocks is not passive, some investors hope to get returns without working. Dividend ETFs can be a convenient way to do this.

I did some research to see if I could find any interesting dividend ETFs in the past week. What is frustrating is that their value proposition is not strong enough. Let me explain.

Unlike capital gains, dividend gains usually have to be taxed on investors. The USA offers the largest number of ETFs, with over 2000, but it attracts a 30% dividend tax on foreign investors. This will reduce the actual dividend received, not to mention the ETF fees that must also be paid.

I believe a good dividend ETF is one that is widely diversified and can distribute at least a 5% dividend yield.

Global X Super Dividend ETF (SDIV) $Global X Funds Global X Superdiv Etf (SDIV.US)$ Currently offering a very attractive dividend rate of 10.18%, paid monthly! Even after a 30% dividend tax, the yield is still around 7%.

Upon further digging, I noticed that over the past 10 years, the ETF has only generated a 0.93% annual return. This means that the ETF price has been declining, eroding the dividend income over the years.

I can think of two reasons. One is that such high-yield stocks are often junk, hence the underlying stock performance is poor. Secondly, the ETF may allocate capital besides dividends to boost the yield, causing the value and price of the ETF to drop.

Considering the 30% dividend tax, a foreign investor holding SDIV would actually incur losses even after holding the ETF for 10 years!

One way to lower the dividend tax is to invest in ETFs registered in Ireland, but there are no dividend-focused ETFs to choose from.

Alternatively, choose an ETF listed and invested in countries without stock dividend taxes. Singapore is one such place where there are dividend ETFs available for investment or selection. Unfortunately, their yields have not reached my minimum of 5%.

Even $LION-PHILLIP S-REIT (CLR.SG)$ REIT ETF currently has a yield of 4%+. Moreover, it is specific to an industry, not broad enough to be an independent investment in a portfolio. It must be mixed with other investments to achieve some level of diversification. Otherwise, any impact on the REIT industry will harm the entire investment portfolio.

We can also look at the United Kingdom's dividend ETFs as there is no dividend tax there. For example, the iShares UK Dividend UCITS ETF (IUKD) has a yield of 5.34%, but the 0.4% expense ratio will be lower than 5%. Marginally acceptable, but the British pound has been performing poorly, so after accounting for forex losses, the actual return will be lower.

Finally, let's take a look at Hong Kong. You will notice that former British colonies are more likely to implement a zero dividend tax policy. The Global X HSI High Dividend Yield ETF (3110) $Global X Hang Seng High Dividend Yield ETF (03110.HK)$ has a yield of 7.04%, but we must consider a 10% dividend tax, as well as a 0.68% ETF expense. Deducting these, the net yield is 5.66%.

While the yield may seem decent, 36.03% of the dividends are taken from capital, depressing the stock price, which is not actual income. This means only slightly over 3% is true dividend income.

In the end, I can hardly find a decent dividend ETF that makes sense after all the taxes, expenses, and capital distributions. Unfortunately, the best way to obtain dividend income is to build an investment portfolio oneself.
So just let it be.