Not every dividend ETF you buy needs to be boring. The vast majority of dividend ETFs you hold should certainly be ones that compound reliably over decades, but it’s also worth buying up those that have significant upside potential while paying you to wait for those gains.
The current environment is perfect for going shopping for such dividend ETFs. Interest rates are coming down again, and it’s likely that dividend ETFs that declined as interest rates went up will start covering ground again. It would be hard for the market to ignore dividend-payers as declining interest rates bring down Treasury yields and deposit rates along with them.
However, if you scoop them up ahead of time, you’ll be able to lock in shares before the market gets hungry for more yield. Here are three that can deliver up to 100% upside:
VanEck Junior Gold Miners ETF (GDXJ)
VanEck Junior Gold Miners ETF (NYSEARCA:GDXJ) is a gold mining ETF that replicates the price and yield performance of the MVIS Global Junior Gold Miners Index (MVGDXJTR), which in turn tracks small-cap companies mining gold and/or silver.
Gold has been soaring and is up 49% year-to-date, and it is taking gold miners along for the ride. GDXJ is up a staggering 128.6%.
However, once you zoom out, you’ll quickly notice that gold miners are simply making up lost ground. These companies fell sharply over a decade ago. And relative to the current surge, they essentially traded sideways until consensus started shifting in 2024.
New-found confidence in gold and silver is being boosted by the dollar’s decline and a tendency by central banks worldwide to stockpile gold while reducing reliance on the USD. Gold miners are at the forefront of those benefiting from this trend, especially those that are smaller and can expand with more agility.
A sustained multi-year gold rally is plausible. In this case, GDXJ can double or more from here.
The dividend yield is 1.12%, with the expense ratio at 0.51%, or $51 per $10,000. The yield isn’t the main draw, as investing in gold miners is turning out to be very fruitful by itself.
KraneShares CSI China Internet ETF (KWEB)
The KraneShares CSI China Internet ETF (NYSEARCA:KWEB) is an ETF that buys the Chinese internet and internet-related companies listed outside mainland China. It tracks the CSI Overseas China Internet Index.
China’s tech sector was battered for years, especially after headlines circulated about a crackdown in the sector. Worse, a broader slowdown in the Chinese economy and ripples from COVID made it difficult for any of these companies to truly bounce back. Big Chinese Tech companies’ sales growth barely crossed 2% annually, and investors saw no reason to slap on a premium for these slow-movers.
Since then, things have turned around drastically. Investments are pouring into tech companies, and China is dramatically closing the gap in AI with the U.S.
Yale faculty, former Chief Economist and Asia Chair at Morgan Stanley, Stephen Roach, pointed out that China accounted for 28% of Global R&D spending in 2023, only behind the U.S.’s 29%. He opined, “The winner will most likely be the country that provides greater support for basic research, in which case China is now much better positioned than the US for the long haul.“
Indeed, the market seems to be warming up to China’s tech stocks as their AI models are moving into the top spots.
KWEB is up 49.3% year-to-date and has significantly outperformed the S&P 500’s 14.88% year-to-date gain. Triple-digit returns are possible if KWEB recovers to its all-time high above $102.
The dividend yield is 2.39%, with an expense ratio of 0.70%, or $70 per $10,000.
Schwab Long-Term US Treasury ETF (SCHQ)
The Schwab Long-Term U.S. Treasury ETF (NYSE:SCHQ) gives you exposure to long-maturity U.S. Treasuries. It tracks the total return of the Bloomberg US Long Treasury Index. All Treasuries held by this ETF have maturities of over 10 years.
The ETF itself hasn’t done so well due to higher interest rates being readily available. It is a well-known phenomenon that bond prices decline when the Fed raises interest rates, and vice versa.
Given that interest rates have started to come down again, beginning in September, it is highly likely that SCHQ has marked a bottom. It is a good idea to buy and hold the ETF before declining yields push investors into SCHQ, as its long-term horizon will keep yields sticky even if we enter an ultra-low interest rate regime.
SCHQ will pay you to wait. It comes with a 4.54% yield, with a monthly distribution. The expense ratio is also extremely low at 0.03%, or $3 per $10,000.
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