Global Water ETFs

I'm interested in the water sector (utilities, engineering, pipes, etc.) so I'm looking into water sector ETFs. There are two that are pretty similar in terms of geographical diversification and sector diversification. They even have more than a few stocks in common, though there are a lot that are not, which seems odd. These two ETFs are PowerShares Global Water (PIO) and Claymore's S&P Global Water Index ETF (CGW).

What really seems odd however is that CGW yields almost 8%, while PIO only paid out a single dividend in the last two yeas of $0.008 in mid-june 2009, according to Yahoo finance. What gives? If they're so similar, why the big difference in yield? Some info can be obtained by looking at the ETFs annual and semi-annual reports. Claymore's is here: http://www.claymore.com/etf/fund/cgw. I got PowerShares' through morningstar: http://quicktake.morningstar.com/fundnet/secfiling.aspx?symbol=PIO&country=USA.

On page 21 of Claymore's annual report, you can see that CGW received a bit over $15M in dividends from August 2007 to 2008. But CGW only distributed 1/10th of that to shareholders (page 22). With 15M shares outstanding that's about 10 cents/share, which is close to the dividend shareholders received in December 2007 ($0.108). In December 2008, CGW distributed almost $12M (page 28), or $1.24/share, for a yield of 8% based on the recent price/share 0f $16.33.

But what can we expect in the future? From August 2008 to February 2009, CGW collected $1.2M in dividends, so perhaps we can expect $2.4M in dividends for the 2009 fiscal year. Still, a lot of European companies don't provide quarterly dividends, they may do it semi annually, or just annually. Also, they are more likely to keep their payout ratio fixed and let the dividends fluctuate with earnings. Nonetheless, you can see that that's a lot less than the $15M collected in FY 2008. So, if we do the math we get: $15M-$1M-$12M+$2.4M=$4.4M, or $0.45/share (there are only 9.64M shares now; see page 28), or at the current $16.33/share, an expected 2.8% yield for 2009. Realistically, we're talking somewhere in the 1% to 3.5% range. If we just consider our estimate of $2.4M for 2009 (ignoring leftovers from previous years), the yield falls to 1.5%. Nowhere near the 8% quoted by Yahoo. Of course, Yahoo calculates this stuff automatically. Just goes to show you that you have to be careful.

PowerShares had a different approach. On page 138 of the semi-annual report, you can see that for FY 2008, which ends in October, they received $0.32/share in dividends (investment income) but did not make any distribution to shareholders in FY 2008. At some point between October 2008 and April 2009, they distributed $0.16/share, while making $0.07/share in dividends. So perhaps we can expect the fund to make $0.14/share for 2009. That's a lot lower than last year's $0.32. Still, a lot of European companies don't provide quarterly dividends, they may do it semi annually, or just annually. Also, they are more likely to keep their payout ratio fixed and let the dividends fluctuate with earnings. Consequently, $0.14 is just a rough estimate. If those dividends were distributed, they would provide a 0.9% yield for 2009, based on today's price of $15.33/share. That's not too far off the yield of 1.5% quoted above for CGW based on 2009 dividend income.

Well, so there you are. Gotta check under the hood.