7 of the top high-dividend ETFs to buy now.
Growth stocks may have outperformed over the falling interest rates of the last decade, but they’re in trouble now. High inflation and rising interest rates have depressed their valuations, causing share prices to plummet. Previously outperforming sectors like technology and communication services are now lagging. In contrast, “boring” dividend stocks from more traditional sectors like energy, financials, materials, industrials and consumer staples are now chugging along. These large-cap companies are often flush with cash and pay respectable dividends on a regular basis to their shareholders, with some increasing their yields for years on end. Investors keen on increasing their passive income stream or reinvesting dividends to compound total returns can buy a dividend exchange-traded fund as a safer, diversified alternative to picking stocks. Here is a list of the seven best dividend ETFs to buy today.
Schwab U.S. Dividend Equity ETF (ticker: SCHD)
SCHD tracks the Dow Jones U.S. Dividend 100 Index, a market-cap-weighted index of over 100 U.S. large-cap stocks characterized by high dividend yields. What’s interesting is that SCHD also provides good exposure to value stocks, with lower price-earnings and price-book ratios compared to broad market indexes. In fact, Morningstar actually categorizes the style of SCHD as large-cap value. Notable top holdings in SCHD include Coca-Cola Inc. (KO), Pfizer Inc. (PFE) and International Business Machines Corp. (IBM). The fund is very liquid, with high assets under management of $36 billion and a median bid/ask spread of just 0.01%. Best of all, thanks to its passively managed structure, SCHD is very cheap, coming in at an expense ratio of just 0.06%. The ETF currently pays a good 30-day SEC yield of 3.1%.
Vanguard High Dividend ETF (VYM)
Another option for capturing the returns of domestic high-dividend stocks is by buying VYM, which tracks the FTSE High Dividend Yield Index. VYM holds a total of 443 predominantly large-cap U.S. stocks selected for high yields, with a tilt toward the financial (19.6% weighting), health care (14.4%) and consumer staples (13.4%) sectors. The top holdings of VYM include Johnson & Johnson (JNJ), Procter & Gamble Co. (PG), JPMorgan Chase & Co. (JPM) and Exxon Mobil Corp. (XOM), among many other blue-chip stocks. VYM is highly popular, with massive assets under management, or AUM, of $55.8 billion, making it one of the most well-known dividend ETFs on the market. Like SCHD, VYM is also very cheap, costing an expense ratio of 0.06%. The ETF’s current 30-day SEC yield stands at 2.7%.
SPDR Portfolio S&P 500 High Dividend ETF (SPYD)
The S&P 500 is a solid investment, and SPYD allows investors to capture the performance of the top 80 highest-yielding stocks from its roughly 500 constituents. This approach gives SPYD one of the higher 30-day SEC yields on this list, which currently stands at 3.7%. A good portion of the ETF is dominated by energy stocks, with top holdings such as XOM and Chevron Corp. (CVX). The rest is mostly financials and utilities stocks. Coupled with a cheap expense ratio of 0.07%, SPYD could be a good pick for investors desiring a high passive income stream. With a sufficiently large investment, the high yield could be enough to sustain reasonable retirement expenses.
Vanguard Dividend Appreciation ETF (VIG)
Dividend investors can take two approaches: focusing on high present yields or focusing on a record of consecutive dividend increases. Investors favoring the latter can elect to buy VIG instead of VYM. Unlike VYM, VIG tracks the S&P U.S. Dividend Growers Index, which holds 289 stocks that reliably increase their dividend payouts every year. In terms of top holdings, VIG is very similar to VYM, but with the inclusion of more stocks from the information technology, consumer discretionary and industrial sectors. Notable additions include Microsoft Corp. (MSFT), Visa Inc. (V) and Costco Wholesale Corp. (COST). Despite its lower yield of 1.8%, VIG’s total return has surpassed VYM thanks to the compounding effect of consecutive increases to dividend payouts. Its 10-year trailing performance currently stands at 12.9%, compared with 12.6% for VYM. VIG has the same expense ratio as VYM at 0.06%.
SPDR S&P Dividend ETF (SDY)
Like VIG, SDY also focuses on the stocks of companies with a history of dividend payout increases. However, SDY takes this criterion one step further, electing to only hold the stocks of companies with at least 20 consecutive years of dividend increases. To do this, SDY tracks the S&P High Yield Dividend Aristocrats Index, and further weights its holdings by their yield, with higher-yielding stocks receiving more emphasis. This gives SDY a good blend between capital appreciation and income, potentially boosting its total returns. The ETF’s 119 stocks are divided roughly equally into four main sectors: consumer staples, utilities, financials and industrials, with around 15% in each, and the rest in a smattering of others. SDY currently pays a 30-day SEC yield of 2.3% and charges a bit pricier expense ratio of 0.35%.
ProShares S&P 500 Dividend Aristocrats ETF (NOBL)
SDY isn’t the only option for tracking dividend aristocrats. Investors can also buy NOBL, which tracks the S&P 500 Dividend Aristocrats Index. Unlike SDY, NOBL has stricter criterion, requiring its holdings to demonstrate at least 25 consecutive years of dividend payouts and growth, with most having 40 years or more. This stricter standard eliminates more companies, making NOBL much more concentrated, with all 65 dividend aristocrats in its portfolio. Unlike SDY, NOBL does not weight its holdings by dividend yield. Rather, it opts for a more-or-less equal weighting to all holdings, allowing for a balanced composition. The ETF pays a 30-day SEC yield of 1.9% and costs an expense ratio of 0.35%, identical to SDY’s. A good use for NOBL may be as a tax-loss harvesting partner in conjunction with SDY owing to their similarity.
iShares Select Dividend ETF (DVY)
A more diversified, less strict option for accessing domestic dividend stocks is via DVY. DVY is passively managed and provides exposure to 100 broad-cap U.S. stocks with at least a 5-year record of paying dividends. Compared to the previous ETFs, DVY is more concentrated in the utilities sector (26.8% weighting), with financials (20%) coming in second. Notable top holdings include Altria Group Inc. (MO), Valero Energy Corp. (VLO) and IBM. The 30-day SEC yield is also high at 3.4%, with distributions paid on a quarterly basis. However, DVY is expensive for a passively managed ETF, costing an expense ratio of 0.38%, the highest on this list so far. Despite this higher fee, DVY has attracted decent attention, with AUM of $23 billion and average daily trading volume of more than 1.1 million shares.
7 of the best high-dividend ETFs to buy:
— Schwab U.S. Dividend Equity ETF (SCHD)
— Vanguard High Dividend ETF (VYM)
— SPDR Portfolio S&P 500 High Dividend ETF (SPYD)
— Vanguard Dividend Appreciation ETF (VIG)
— SPDR S&P Dividend ETF (SDY)
— ProShares S&P 500 Dividend Aristocrats ETF (NOBL)
— iShares Select Dividend ETF (DVY)
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Update 06/09/22: This story was published at an earlier date and has been updated with new information.